It can be tough to find a truly undervalued stock in the large-cap space. With tons of analyst coverage and daily news updates, the market tends to get the pricing for these stocks right. But it’s really exciting when the market gets it wrong, such as the case with Coach, Inc. (NYSE:COH).
Coach, Inc. (NYSE:COH) tumbled nealry 10% last week as the fear that competitors in the North American market are threatening its market share. Fourth-quarter EPS came in at $0.78, below consensus of $0.89.
For the full year, fiscal 2013 sales came in at slightly more than $1.2 billion versus slightly less than $1.2 billion for the same period last year. Earnings per share were up to $3.73 from $3.53 for the same period last year.
Lew Frankfort, Coach, Inc. (NYSE:COH) CEO, noted that
We generated strong international results, leveraged the men’s opportunity globally, strengthened our digital capabilities and drove excellent initial results in the re-launch of footwear. While we maintained our outstanding profitability levels, we were not satisfied with our performance in the women’s handbag and accessories category in North America.
The positives
Despite concerns of growth in North America, international is still growing nicely for Coach, Inc. (NYSE:COH). I think the balance sheet helps with downside protection, where the company has over $1 billion in cash and little-to-no debt, not to mention its 2.5% dividend yield.
The other big key for Coach, Inc. (NYSE:COH) is its opportunity in footwear and other outerwear. This market presents a vast opportunity for the company, possibly as big as the handbag market.
Bustling consumer discretionary
Let’s compare Coach, Inc. (NYSE:COH) to the other major high-end retailers, such as Fossil Inc (NASDAQ:FOSL) and Tiffany & Co. (NYSE:TIF). Fossil designs watches and other accessories. Sales are expected to be up 11.5% in fiscal 2013 for Fossil, as it continues retail expansion and new product introduction.
In recent days, the stock soared some 18% on better-than-expected earnings. The big news was that 2Q EPS was up to $1.15 compared to $0.92 for the same period last year. Specifically, sales in Europe and Asia beat expectations.
Fossil Inc (NASDAQ:FOSL) is a watch company, with nearly 75% of revenue coming from the sale of watches. Its four key watch segments include fine $4,000-plus watches (i.e. Burberry, Fossil), premium $500-plus (Skagen, Zodiac), contemporary $60-plus (DKNY, Diesel) and mass-market $5-plus (Wal-Mart Stores, Inc. (NYSE:WMT), Target Corporation (NYSE:TGT)). I’m also encouraged by Fossil’s exposure to the fast-growing Asian market, accounting for 17% of 2012 sales.
After posting 1Q EPS of $1.21, versus $0.93 for the same period last year, Jefferies Group, Inc. (NYSE:JEF) upgraded the stock’s price target to $130. The investment firm cites solid watch sales, up 23% year-over-year in the 1Q, as a big positive. Jefferies believes that Fossil Inc (NASDAQ:FOSL) owns 10% of the watch market, with the real kicker being that the global watch business is expected to grow between 7% and 10% annually over the next few years.
Blue box
Meanwhile, Tiffany & Co. (NYSE:TIF) is the 175 year-old jewelry company famous for the little blue boxes. Jewelry accounts for over 90% of revenue. Meanwhile, the Americas account for around 50% of sales, with other major areas being Asia (20%) and Japan (17%).
Tiffany & Co. (NYSE:TIF) is looking to open over 15 new stores in fiscal 2014, with the majority in Asia. This will be one of its key markets going forward. During fiscal 1Q 2014, global same-store sales were up 8%, driven by 21% growth in Asia.
Tiffany & Co. (NYSE:TIF) is up over 12% the past month, on the back of a string of upgrades…
Topeka Capital Markets reiterates buy on July 8, with a $86 price target.
Stifel Nicolaus upgrades Tiffany & Co. (NYSE:TIF) from a hold to a buy, slapping a $92 price target on the stock as of July 15.
TheStreet reiterates a buy rating on July 18, noting Tiffany & Co. (NYSE:TIF)’s strengths as “…revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations, solid stock price performance and expanding profit margins.”
Bottom line
From 2008 up to mid-2012, Coach, Inc. (NYSE:COH) traded relatively inline with major peers…
However, now Coach is trading on the low end. I don’t think this is justified. The purse maker is trading at a 12.4 times forward P/E, and analysts expect five-year EPS to grow at an annualized 11.2%. I think now would be a great buying opportunity for Coach, while both Fossil Inc (NASDAQ:FOSL) and Tiffany & Co. (NYSE:TIF) should both be big benefactors on a return in consumer discretionary spending; but I’d hold off on Fossil given the recent run up.
Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends Coach and Fossil. The Motley Fool owns shares of Coach and Fossil.
The article An Uncommonly Undervalued Large Cap originally appeared on Fool.com.
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