In an effort to boost sales, Coach Inc (COH) is looking to add more high-end designer products. And in a rare move, Coach announced an agreement to buy luxury shoemaker Stuart Weitzman Holdings, LLC.
Will this new acquisition help COH stock climb back to the top?
Coach – Company Overview
Coach began in 1941 as a family-run workshop where artisans crafted leather goods by hand. From there, it wasn’t long before Coach became more widely known as a standard for leather goods and fine craftsmanship around the U.S., and eventually, the world.
Today, Coach has grown to become a global brand with more than 500 locations in the U.S. and Canada and more than 250 stores internationally. Coach employs more than 10,000 full-time employees and pays a 3.7% dividend yield.
Coach – Acquisition Buzz
Coach announced that it is acquiring Stuart Weitzman Holdings, LLC from private owner Sycamore Partners for a total of $574 million.
Stuart Weitzman manufactures and designs women’s luxury shoes. In the last fiscal year, Stuart Weitzman’s products generated $400 million in revenue.
The acquisition is tentatively set to close in May 2015, with Coach making an initial cash payment of $530 million. Coach will make $44 million in contingent payments to Sycamore Partners once COH achieves select revenue goals over a three-year span, after the acquisition close.
Coach expects the acquisition to immediately add to earnings-per-share. However, that’s not saying much, given that Coach is headed for a 37.7% year-on-year drop in earnings this quarter.
Coach – Current Ratings
COH stock’s performance over the past 12 months has been dismal, remaining in “sell” territory. It’s not surprising as COH stock’s buying pressure is pretty low, earning an F for Quantitative Grade.
Meanwhile, COH’s fundamental grades aren’t that strong either. COH earns decent to strong marks for cash flow (B), earnings surprises (B) and return on equity (A).
However, I don’t see much in the way of analyst earnings revisions (C), earnings growth (D), earnings momentum (D), or operating margin growth (D). Sales growth is where COH stock needs most improvement, where it outright fails (F). Overall, COH earns a C for its Fundamental Grade.
As of this posting, I consider COH an F-rated “strong sell.” While the merger announcement has lifted COH shares, it’s too soon to tell if this will truly turn Coach around.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
