COH moving to best idea Long this morning. The growth, earnings, cash, and sentiment factors are changing dramatically on a multi-year basis. $60 in 1-yr, $80 in 2.
- Back in the day I was the little punk analyst at Morgan Stanley that had the stones to have a Sell on Coach. Yes, MS was the #1 banker and did the spin out of Sara Lee. Yes, I was SO wrong on the stock, the industry, and ultimately the stock – for all the worst reasons.
- I’ve never been Long it since – mostly Short, actually. Not bc of sour grapes, but bc it’s ‘Coach’. That call was right more often than not.
- For the first time in a decade, I’m long it. The math simply works – a lot. (and for the right reasons – haha).
- This KATE deal would have been accretive at $29 nevermind $18.50.
- Now the core Coach brand has arguably completed a bottoming process, and bc of the low price it still has enough leverage left in the tank to buy a Jimmy Choo or two.
- The horrible governance issues (at KATE) around why this deal is getting done are the same issues leading to Coach guiding so low to justify the miniscule price.
- Earnings expectations are low next year by a good $0.40. The year after by $0.75.
- I don’t care if ‘it looks expensive’. 1) it’s not. 2) it’s one of 5 names that is clearly investable – so far – as #Retail5.0 kicks off.
- I think downside is $5-$8 – only if someone else steps in, pays the breakup fee AND COH does NOT outbid anything above $25.
- Otherwise, I’m all in.
- Not difficult to build to a $60 stock in a year, and $80 the year after.
Best Idea Long.
Second only to Nike.
Here’s the Link to our COH/KATE preso from earlier this week.
KATE / COH Merger Call Link: CLICK HERE
