Coach, Inc. (COH), Freeport-McMoRan Copper & Gold Inc. (FCX): Wednesday’s Top Upgrades and Downgrades

This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, our headlines include new buy ratings for a pair of specialty retailers, Coach, Inc. (NYSE:COH) and Aeropostale, Inc. (NYSE:ARO). Meanwhile in mining, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) suffers a downgrade. Let’s dive right in, beginning with why…

Coach is fashionable again
The day dawned bright for Coach investors Wednesday, as analysts at CLSA upped their rating to “buy” in response to a strong earnings report featuring 7% first-quarter sales growth and a 10% bump in earnings per share.

In each case, these numbers beat estimates, and analysts were particularly enthused over Coach’s 40% jump in sales in China. But does all this mean that you should now follow their advice, and rush out and buy yourself some Coach, Inc. (NYSE:COH) shares?

Possibly… yes. Priced at just under 15 times earnings based on its latest income figures, Coach shares don’t look half bad relative to projected earnings growth of nearly 14% annually over the next five years. Factor in a 2.3% dividend yield, and the shares actually look to be a bit of a bargain. Granted, Coach, Inc. (NYSE:COH) hasn’t yet revealed its free cash flow figures for the most recent quarter. But once it does, and assuming those figures mirror the growth shown in net income, I’d say the stock’s a bargain.

Aeropostale is looking cool, too
Aeropostale — initiated this morning with a “positive” rating at Susquehanna — is a bit iffier of a proposition. On one hand, the stock looks expensive at 30 times earnings. On the other hand, the stock boasts strong cash reserves that reduce its enterprise value and shrink the apparent overvaluation. Also, Aeropostale is a strong cash generator.

Fact is, if you give Aeropostale, Inc. (NYSE:ARO) credit for its cash hoard, and value it on its $72.5 million in trailing free cash flow rather than its trailing “income” of just $35 million, the stock is selling for an enterprise value-to-free cash flow ratio of less than 11.

That’s not a horrible price at Aeropostale’s projected 9.5% earnings growth rate — but it’s not a huge bargain, either. Right now, my thinking on the stock is that it looks slightly overpriced if it can’t grow faster than analysts project. And if Aeropostale surprises us — if it grows as fast as the 12% rate projected for the rest of the specialty retail industry, say — then the stock might even be cheap enough to buy. For now, though, I’m going to sit on the fence. Aeropostale doesn’t look clearly overvalued to my Foolish eye, but it’s not an obvious bargain, either.

Freeport-McMoRan’s down in the dumps
Finally, switching gears both from positive ratings to negative and from retail to another sector entirely, we turn to copper, gold — and now oil, too! — company Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX).

Freeport reported first-quarter earnings last week, beating estimates despite experiencing a 15% slide in net earnings. After mulling the numbers for a few days, analysts at Argus Research finally came to a conclusion this morning, and downgraded the stock to “hold” — but I think even this lower rating is overly generous.