Coach Inc. Analysis – July 2015 Update $COH

Official_Coach_Inc_LogoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – July 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Coach Inc. (COH) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Coach, Inc. is a design house of modern luxury accessories and lifestyle collections. The Company offers premium lifestyle accessories to a loyal and engaged customer base and provides consumers with products that use a broad range of leathers, fabrics and materials. The Company’s operates in two reportable segments: North America, which includes sales to North American consumers through Coach-operated stores and sales to wholesale customers, and International, which includes sales to consumers through Coach-operated stores and concession shop-in-shops and sales to wholesale customers and distributors in approximately 35 countries. The Company’s product offerings include modern luxury accessories and lifestyle collections, including women’s and men’s bags, women’s and men’s small leather goods, business cases, footwear, wearables including outerwear, watches, weekend and travel accessories, scarves, sunwear, fragrance, jewelry, travel bags and other lifestyle products

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Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 - PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio – PEmg is less than 20 - PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 - PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability – positive earnings per share for at least 5 years - PASS
  4. Dividend Record – currently pays a dividend - PASS
  5. Earnings growth – EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price $31.16
MG Value $32.54
MG Opinion Fairly Valued
Value Based on 3% Growth $38.78
Value Based on 0% Growth $22.73
Market Implied Growth Rate 1.58%
Net Current Asset Value (NCAV) $3.34
PEmg 11.65
Current Ratio 4.19
PB Ratio 3.40

Balance Sheet - March 2015

Current Assets $2,898,000,000
Current Liabilities $691,000,000
Total Debt $889,000,000
Total Assets $4,513,000,000
Intangible Assets $316,000,000
Total Liabilities $1,972,000,000
Outstanding Shares 277,400,000

Earnings Per Share

2015 (estimate) $1.63
2014 $2.79
2013 $3.61
2012 $3.53
2011 $2.92
2010 $2.33
2009 $1.91
2008 $2.17
2007 $1.76
2006 $1.27
2005 $0.86

Earnings Per Share – ModernGraham

2015 (estimate) $2.67
2014 $3.14
2013 $3.17
2012 $2.82
2011 $2.38
2010 $2.04

Dividend History

Free Cash Flow


Coach Inc. qualifies for the Enterprising Investor and the more conservative Defensive Investor.  The Defensive Investor is only concerned with the short dividend history.  The Enterprising Investor has no initial concerns.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the evaluation.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.38 in 2011 to an estimated $2.67 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 1.58% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Coach Inc. (COH)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author held a long position in Coach Inc. (COH) but did not hold a position in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.


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