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3 Stocks Ready for Share Buybacks

These undervalued stocks have the means for big repurchases

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Coach NYSE:COHIt’s been a tough couple of years for luxury retailer Coach (NYSE:COH), which has shed 35% during the past 12 months. Rival retailer Michael Kors (NYSE:KORS) has taken the sector hostage, while other competitors like Fifth & Pacific‘s (NYSE:FNP) Kate Spade brand have also done some damage.

But because of that, the company is cheap right now … just ask Marian Kessle, a portfolio manager for Becker Capital Management. Kessler’s strategy: Buy good companies at discount prices. Coach is definitely both. When talking about stocks trading below historical norms, the money manager recently said:

“Coach had a series of missteps, which we think are short-term in nature. Following a difficult fourth quarter, the stock is now trading at about 13 times earnings and an enterprise value to EBITDA of 8.5 times, which is in the lower quartile of its valuation range over the last 10 years.”

Since fiscal 2005, Coach has reduced its share count by 26%, or 100 million shares. In the past three years alone, it has bought back $2.95 billion of its stock at an average price of $47.72 per share. Given its current share price of around $50, it doesn’t appear CEO Lew Frankfort and company have done a very good job. However, during the three-year period between July 2009 and July 2012, COH’s average price was $51.32, meaning Coach actually has done a reasonable job repurchasing a lot of stock.

Coach’s trailing 12-month free cash flow is $984 million. Its dividend payments for fiscal 2013 should be around $510 million, leaving it with $474 million for share repurchases, plus $836 million in cash that’s sitting in the bank. COH has $1.36 billion left on its current share repurchase program, and considering it bought back $1.1 billion worth of stock in both FY2011 and FY2010, it’s not unreasonable to think Coach can and will utilize almost the entire amount by the end of this calendar year.

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