Coach, Inc. (COH), Abercrombie & Fitch Co. (ANF): Today’s Top Upgrades & Downgrades

Why? Well, priced at 16.5 times earnings, AE shares don’t cost a whole lot more than Coach, Inc. (NYSE:COH)’s, and appear cheaper than Abercrombie & Fitch Co. (NYSE:ANF) on the surface. Growing at a projected 12% annual rate, and paying a strong 2.3% dividend yield, I’d say the worst possible valuation at AE suggests the shares to be about fairly valued. Maybe a touch overpriced. More likely, though, in my view, is that AE shares are undervalued rather than over-.

Consider: AE generated $381 million in real free cash flow last year, or 64% more “cash profit” than the “accounting profit” it was allowed to report under GAAP. Valued on its free cash, the stock sells for less than 10 times FCF, and is even cheaper than that once you back out the company’s $631 million in cash.

Fact is, when I run the numbers, what I see at AE is a company selling for just eight times annual cash profits, growing at near-12%, and paying its shareholders a 2.3% divvy. To my Foolish eye, that’s a bargain-priced stock — and Wells is wrong to downgrade it.

Fool contributor Rich Smith owns shares of Abercrombie & Fitch Co. (NYSE:ANF). The Motley Fool recommends Coach, Inc. (NYSE:COH). The Motley Fool owns shares of Coach.

The article Tuesday’s Top Upgrades (and Downgrades) originally appeared on Fool.com and is written by Rich Smith.

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