Coach shares are a bargain: Barron's

Sun Feb 24, 2013 12:37pm EST

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(Reuters) - Coach Inc (COH.N) shares look like a bargain, and the company's potential to benefit from an expanding product line and growth in Asia suggests that a recent plunge in its share price is "overblown," Barron's said in its February 25 edition.

Known for its high-end handbags, where it commands a 28 percent U.S. market share, Coach has seen sales growth slow recently because of competition from rivals such as Michael Kors (KORS.N), Kate Spade and Tory Burch, the newspaper said.

In the most recent quarter, for example, revenue rose 70 percent at Michael Kors but just 4 percent at Coach, where sales at comparable North American stores fell 2 percent in just the third decrease in 11 years.

Shares of Coach closed on Friday at $46.79 on the New York Stock Exchange.

That's down more than 41 percent from their 52-week high set last March 27, and includes a more than 16 percent drop on January 23, after the New York-based company reported fiscal second-quarter results.

According to the newspaper, however, Coach shares trade at 13 times expected profit in the current fiscal year, and are "a better deal" than Michael Kors shares trading at a 32 multiple.

The newspaper said Coach's growth outlook is better than some investors believe, given its increasing emphasis on shoes and clothing, and its success at selling discontinued products at outlet stores without diluting its brand.

Coach could also benefit from increased margins in China, where it hopes to expand square footage by 35 percent this year to serve a handbag and accessories market larger than the U.S. market, and South Korea, the newspaper said.

"Investors worry that Coach, whose stock price has multiplied 20 times since 2000, to a split-adjusted $46.79, is at the end of a remarkable run," Barron's said. "That fear seems overblown ... At its current price, Coach looks like a bargain."

(Reporting by Jonathan Stempel in New York; Editing by Bernard Orr)

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