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

Historically, Coach has generated high return on invested capital. In the past ten years, its return on invested capital has fluctuated in the range of 38.65% to 56.88%. Trailing twelve months, its ROIC stayed at 52.56%. Michael Kors Holdings Ltd (NYSE:KORS) and Vera Bradley had a lower TTM ROIC, at 36.80% and 38.18%.

Last but not least, Coach, Inc. (NYSE:COH) is a cash cow, generating consistent operating cash flow and free cash flow. Its operating cash flow increased from $222 million in 2003 to $1.22 billion in 2012, while free cash flow grew from $165 million to more than $1 billion during the same period.

At the current trading price of $59 per share, Coach is worth around $16.5 billion on the market. The market values Coach at around 8.9 times EV/EBITDA and its FCF yield is 6%.

Vera Bradley and Michael Kors are more expensive

In 2012, Vera Bradley, Inc. (NASDAQ:VRA) generated only $16 million in free cash flow. The company is trading at around $22 per share, with a total market cap of only $898 million. It is valued at a lower multiple of 7.5 times EV/EBITDA. However, because of the low FCF, its FCF yield is much lower at 1.78%.

In the past twelve months, the free cash flow of Michael Kors Holdings Ltd (NYSE:KORS) was $137 million. At $53 per share, the company is worth $10.6 billion on the market. It is valued expensively at 16.9 times EV/EBITDA. With FCF of $137 million, its FCF yield of 1.3% is the lowest.

Coach, Inc. (NYSE:COH) seems to be the most attractive stock for income investors with the highest dividend yield of 2.3%, while neither Michael Kors nor Vera Bradley pay dividends to their shareholders.

My Foolish take

Coach seems to be a much better buy than Michael Kors and Vera Bradley at its current price due to its decent dividend yield, the highest return on invested capital, low leverage and a reasonable valuation.

The article This Fashionable Company Is a Good Pick Now originally appeared on and is written by Anh Hoang.

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