Coach, Inc. (COH) has the wind at its back as sales and earnings continue to surge in this post-recession environment.
Growth rates and estimates are rising following the latest earnings surprise, keeping valuations at relatively attractive levels for this Zacks #1 Rank (Strong Buy).
Company Description
Coach makes signature leather handbags and accessories for men and women. The company’s price points are on the higher end of the spectrum, but not as high as brands like Louis Vuitton, Fendi and Marc Jacobs.
Beat the Street
Coach reported quarterly results on Oct 26 that included earnings per share of 63 cents, 8 cents higher than expected. This was the fifth consecutive earnings surprise.
Once again, the company reported “double-digit” growth in China. That is in quotes because they never give the actual number. I do like that strategy, because it transparent, but smoothes the volatility and focuses on the fact that China is going very well.
In any event, net sales came in at $912, up 20%, pushing operating income 28% higher, to $286 million. The CEO said the “wind was once again at [Coach’s] back.” Not too many retailers are feeling that way, so this a great sign.
Bullish Estimates
The Zacks Consensus Estimate for this fiscal year was already up a dime into the report and picked up another 8 cents after and is now $2.83. Next year’s forecasts are averaging $3.21, up 26 cents in that time period.
If Coach can hit these targets, year over year growth will be 22% in fiscal 2011 and another 13% in fiscal 2012.
Valuations
Like Coach’s products, you will be paying a slight premium but shoppers and investors are both saying it is worth it. Shares are trading at just under 18 times this year estimates and around 15.5 times fiscal 2012 forecasts. The PEG ratio is 1.17, not a bargain but the growth is fairly priced.
The Chart
As you would expect from a luxury retailer, the earnings estimates have formed a nice v-shape thanks to the recession. However, look at the estimates last time COH was trading at this level. In fact, the P/E is a discount compared to pre-recession levels.
Bill Wilton is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Small Cap Trader service
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