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The Bull Case on Coach (COH) From Broyhill Asset Management

Broyhill Asset Management recently released its research on shares of Coach (COH). They're bullish on the company and classify it as a classic compounder.

Broyhill writes,

"Coach currently trades at 8.3x EBIT, 13.0x current and 11.7x forward earnings. In other words, the stock is priced as if Coach’s growth is long in its past. At its peak in 2001, shares fetched 32 times earnings. If we assume that Coach ultimately trades back towards its average forward multiple of 15x over the next three years, we estimate the stock is worth $76.60 in our base case, which represents more than 50% upside potential. In our bull case, upside is significantly greater."

Broyhill's thesis on this handbag retailer is pegged on three growth drivers: the ascent of affordable luxury, continued brand extension, and ongoing international expansion.

They feel a short-term shift in investor sentiment has created an entry point for long-term investors. Their report, embedded below, highlights industry dynamics, competitive positioning, and executive leadership.

They also highlight the following as areas of potential risk:

- International expansion
- The Chinese consumer
- Margin compression
- Brand dilution
- Competition

Embedded below is Broyhill's full 20-page pitch on shares of Coach (COH):

Read more:
I agree with Rogerwilco that Coach is a undervalued luxury stock. It has great financials - no long term debt, high ROE, ROIC and ROA, high gross margins and free cash flow. As highlighted by the report from Broyhill, it has growth as well as it is executing on its strategy to enter the China market.

To read more about why Coach is an undervalued stock, read here

Disclaimer: This is not a buy or sell stock tip. Please do your own research. 
Value investing blog:
Would it be an interesting time to look at it now? Share price got hit badly because of poor NA SSS, but growth in Asia is still pretty solid albeit the % of revenue contribution is still small.

Bag designs do not command much differentiating factor (if we exclude the high-end luxury such as LV and Chanel) since it is largely based on people's buying habit and style. Then again, maybe as a guy I can't really tell the difference between a Coach and a Michael Kors bag lol. Are the designs moving toward more "understated" branding (simplicity plus more discreet brand icons versus large symbols which shouts the brand name) as well?

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