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Coach, Inc. (COH) Is a Good Pick Now

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Coach, Inc. (NYSE:COH)An investment opportunity arises when a beaten down stock begins to pick up due to an improvement in its business. A stock might be beaten down because of various reasons: deteriorating fundamental performance, heavy insider selling, weak overall industry performance, earnings miss, etc. However, when those temporary problems are corrected and the business improves, it might be the time for opportunistic investors to come in.

That happened with retailer Coach, Inc. (NYSE:COH). On Jan. 23, Coach’s second quarter EPS came in at $1.23, missing analysts estimate of $1.26. Right after that, the market sent its shares down as much as 13%.  However, in the third quarter, its business seems to have improved. Moreover, Coach, Inc. (NYSE:COH) announced that it would also raise the dividend. Coach’s share price has rallied after its third-quarter earnings results. Is Coach a buy now? Let’s find out.

Business snapshot

Coach is a leading American retailer of fine accessories and gifts for both women and men. The company sells diverse fashionable products including handbags, accessories, wearables, jewelry, sunwear, fragrance, and watches. Most of its revenue, around 65% of the total, comes from men’s and women’s handbags, while accessories accounted for around 28% of total sales in 2012.

Coach, Inc. (NYSE:COH) has two main business segments: Direct-to-Consumer and Indirect. Most of Coach’s revenue, $4.23 billion, or nearly 89% of total revenue, was generated from the Direct-to-Consumer segment while the Indirect segment contributed only $531.5 million in revenue.

In the third quarter, Coach’s operating performance improved. Coach, Inc. (NYSE:COH) recorded nearly $1.19 billion in revenue, 8.2% higher than last year. Its net income came in at $238.9 million, or $0.84 per diluted share, nearly 6.2% higher than net income of $225 million, or $0.77 per diluted share. The company also announced that it would raise its annual dividend by 13% to $1.35 per share.

Three reasons to buy Coach

There are three reasons that make Coach, Inc. (NYSE:COH) a stock to hold for the long run. First is its superb balance sheet. As of March 2012, it had more than $2.24 billion in total stockholders’ equity, $928.5 million in cash, and only $22.6 million in short and long-term debt. The biggest item in Coach, Inc. (NYSE:COH)’s liabilities is “other liabilities” booked at nearly $413.2 million. Other liabilities include deferred lease incentives, non-current tax liabilities, and tax-related deferred credit.

Michael Kors Holdings Ltd (NYSE:KORS), another leading retailer of branded women’s apparel and accessories under MICHAEL KORS brand, and Vera Bradley, Inc. (NASDAQ:VRA), the retailer of Vera Bradley, Inc. (NASDAQ:VRA) products, also have fortress-like balance sheets with very little leverage.

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