Piper Jaffray Upgrades Coach (COH) to Overweight; Sees Margin Improvement - Raises FY Estimates

July 29, 2009 7:53 AM EDT

Piper Jaffray & Co. upgrades Coach, Inc. (NYSE: COH) from Neutral to Overweight. Price target increased from $23 to $32.

Piper analyst says, "We are raising our investment rating on COH shares in view of what we believe will be margin improvement in the quarters to come: starting in the first half of COH's fiscal year in the form of being "less negative" and wrapping up FY10 with year-over-year margin improvement. This, coupled with early success in sell-throughs of lower price point bags, will likely translate to an upward earnings revision cycle out of COH in the quarters to come...we are raising our estimate slightly for this year, from $1.95 to $1.98 and for next year, from $2.05 to $2.15."

"Stability at factory channel key to mitigating margin erosion. FQ4 came in below our estimate largely owing to 550 bps of gross margin erosion versus our 390 bps estimate. About 275 bps was directly attributable to increased promotional activity at the Factory division. In our own checks, we found the division to be featuring an "additional 20%" off prices throughout the quarter as well as day-of coupons signaling "additional 10%" off coupons on select styles. This level of promotional activity, however planned it may have been, needs to abate for our upward earnings revision expectations to take hold."

To see more analyst ratings on COH Click Here.

Coach, Inc. engages in the design and marketing of accessories and gifts for men and women in the United States and internationally.

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