1. Thursday, December 17, 2009
COH: Coach
Andrew Lokenauth
FIN 357: Student Managed Investment Portfolio
Research Paper

2. Table of Contents
I. Introduction…………………………………………………….………………..….….3
II. Overview of Coach……………………………………………………………………..4
a. History………………………………………………………………………….4
b. Products & Markets………………………..…………………………………..6
III. Financials………………………………………………………………………………...8
a. Income Statement…………………………..…………………………………...8
b. Balance Sheet………………………………………..…………………………...11
c. Cash Flow……………………………………………...………………………..13
IV. Recent News……………………………………………………………………………..15
V. Key Statistics………………………………………………………..…………………..17
VI. Financial Ratios/Numbers……………………………………………………………..18
VII. Valuation………………………………………………………..…………………..19
a. MoneyChimp……………………………………….…………………………..19
b. Damodaran……………………………………………………………………..19
VIII. Price Targets………………………………………………………………………..21
IX. Analyst Recommendations……………………………..……………………………..22
X. Comparison…………………………………………………………...………………..23
XI. Stock Price Graphs……………………………………………………..……………..27
XII. This is why it’s hot……………………………………………………..…………..29
XIII. Tables, Illustrations, Charts, & Graphs………..………………………………..32
a. MoneyChimp……………………………………………………...………….. 32
b. Damodaran: Two-Stage Dividend Discount Model…………………………33
c. Damodaran: Three-Stage Dividend Discount Model…………………….…37
XIV. Works Cited Page ………………….…………………………………………….. 40
2

3. I. Introduction
1
Since introducing Coach to the class at $32.38 on 10/29/09, it has increased in
our portfolio to $36.57 per share as of 12/17/09. In this research paper I will explain
why Coach is such a great stock to own by looking at its financials, recent news on
expansion and new products, comparing it’s EPS and P/E ratio to its competitors and
the industry, its financial stability, its valuation from MoneyChimp and Damodaran,
analysts recommendations and target prices, and graphs and charts to name a few
things I will be looking at. Enjoy!
1
FinViz.com
3

4. II. Overview of Coach
a. History
Coach, Inc., known as COH (Coach) was founded in 1941 and is headquartered in New
York, New York. When it originated, Coach was called Manhattan Leather Bags. Manhattan
Leather Bags began as a family-owned business, with six leatherworkers who made small leather
goods, such as wallets and handbags. In 1946, Miles Cahn and his wife Lillian joined the
company. Miles and Lillian Cahn were owners of a leather handbag manufacturing business, and
knew a great deal about leatherworks and business. By 1950, Cahn had taken over the business
and was running it mainly himself. The workers continued to manufacture small leather goods,
like wallets, for small profits into the 1960s. In the 1960s, Cahn did further research on leather
and discovered a method for processing leather to make it strong, soft, and durable. And at the
suggestion of his wife, a number of womens' handbags were designed to be more affordable. The
purses got the brand name Coach in the 1960s. Coach women's handbags were made out of
sturdy cowhide, which was much better quality than the thin leather pasted over cardboard
material that was used to make other handbags at the time. This catapulted Coach to its' role in
high-quality, luxury, durable leather products.
Then, in the 1960s, the style of Coach was revolutionized when Cahn hired Bonnie
Cashin to work for Coach. Although Bonnie Cashin was already a well-known fashion designer
when she started her work for Coach, this deal proved to be one of her most well-known business
alliances. Cashin worked with Coach from 1962 until 1974, and she is said to have redesigned
their products. She created new ideas, such as side pockets and coin purses, and gave the bags
brighter colors as opposed to the usual hues of browns and tans. Cashin designed matching
shoes, pens, key fobs and eyewear and added hardware to her clothes and accessories alike,
4

5. particularly the silver toggle that became the Coach hallmark, declaring that she had been
inspired by a memory of quickly fastening the top on her convertible sports car. Due to the
success that Cashin brought Coach, they ran their first ad in the New Yorker in 1963.
Throughout the 1970s and 1980s, business went very well for Coach. The products were
in very high demand, and under a new vice president for special products, Coach had started a
mail-order business. They had also owned specialty stores, and began to sell Coach bags outside
of department stores. The sales of Coach increased, and soon the demand was greater than the
supply. Eventually, it got to the point where sales would have to be restricted to only certain
vendors. In 1979, Lew Frankfort, Coach's current CEO, joined the company as vice-president of
business development. In 1983, the Cahns purchased a 300-acre dairy farm in Vermont that they
operated under the name 'Coach Farms.' It was supposed to be a vacation spot away from the
New York Coach office, but instead they commuted 2 hours every week from New York to
Vermont. So, in summer of 1986, the Cahns decided to sell Coach. In July 1985, Coach was sold
to Sara Lee Corporation for $30 million dollars. Sara Lee took over the factory, the 6 boutiques,
and its main store on Madison Avenue, New York. Shortly after, new boutiques were opened in
Macy's stores in New York and San Francisco. Additional Coach stores were under construction
in Denver and Seattle, and similar boutiques were to be opened in other major department stores
later in the year. Coach also opened its own stores in malls in New York, New Jersey, Texas, and
California. By November, the company was operating 12 stores, along with nearly 50 boutiques
within larger department stores.
Lew Frankfort took the position of president of the firm. Frankfort transformed Coach
from the relatively small company that it was in 1985 into the world-wide known brand that it is
today. He is also known for making Coach bags affordable luxury handbags for women, and the
5

6. concept of affordable luxury was a big deal for the fashion industry. Up until the 1990s, womens
handbags were either very expensive, or very inexpensive department store knock-offs. Coach
was the middle ground between the two, therefore filling a gap in the market. Today, Coach
operates 25 stores in the United States that carry full Coach collections, including women's
footwear, men's briefcases and the new jewelry line. Six are located in New York City and two
in Hawaii. Other locations are in Philadelphia, Nashville, Atlanta, Houston, Boston, Los
Angeles, San Francisco, Seattle, Norfolk VA, Washington D.C., and many more.
b. Products & Markets
Today, Coach engages in the design and marketing of fine accessories and gifts for men
and women in the United States and internationally. The company’s primary products include
handbags, women’s and men’s accessories, footwear, jewelry, wearables, business cases,
sunwear, travel bags, fragrance, and watches. Its accessories product line comprises of women’s
small leather goods, including money pieces, wristlets, and cosmetic cases; men’s small leather
goods comprising of wallets and card cases; novelty accessories, such as time management and
electronic accessories; key fobs and charms; and women’s and men’s belts. The company’s
wearables product line consists of jackets, sweaters, gloves, hats and scarves, including cold
weather and fashion goods for women. Its business cases product line includes computer bags,
messenger-style bags, and totes for men. Coach, Inc. also offers luggage and related accessories,
such as travel kits and valet trays; jewelry, including primarily bangle bracelets; and fragrance
products comprising perfume sprays, purse sprays, perfume solids, shimmer powder, body
lotion, and lip gloss.
6

7. As of June 27, 2009, Coach operated 330 retail and 111 factory leased stores in North
America; 155 Coach-operated department store shop-in-shops, retail stores, and factory stores in
Japan; and 28 Coach-operated department store shop-in-shops, retail stores, and factory stores in
Hong Kong, Macau, and Mainland China. Coach, Inc. sells its products through company-
operated stores; the Internet; and the Coach catalog, as well as through wholesale department
stores (Macy's, Nordstrom, and Saks for example), specialty stores, international department
stores (more than 20 countries), and freestanding store locations.
III. Financials2
2
Yahoo Finance
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8. a. Income Statement
As you see, from 2005 to 2009 Coach increased its revenaue each year. From 2005 to
2008 Coach incrased its net income, profit margin, and operating margin each year except for
a very slight decrease from 2008 to 2009 which is not that bad considering the current
economic conditions. A more detailed income statement can be seen below.
In Millions of USD (except for
per share items)
52 weeks
ending 2009-
06-27
52 weeks
ending 2008-
06-28
52 weeks
ending 2007-
06-30
52 weeks
ending 2006-
07-01
Revenue 3,230.47 3,180.76 2,612.46 2,035.09
Other Revenue, Total - - - -
Total Revenue 3,230.47 3,180.76 2,612.46 2,035.09
Cost of Revenue, Total 907.86 773.65 589.47 453.52
Gross Profit 2,322.61 2,407.10 2,022.99 1,581.57
Selling/General/Admin. Expenses,
Total
1,350.70 1,259.97 1,029.59 866.86
Research & Development - - - -
Depreciation/Amortization - - - -
Interest Expense(Income) - Net
Operating
- - - -
Unusual Expense (Income) - - - -
Other Operating Expenses, Total - - - -
Total Operating Expense 2,258.55 2,033.63 1,619.06 1,320.38
Operating Income 971.91 1,147.13 993.40 714.71
Interest Income(Expense), Net
Non-Operating
5.17 47.82 41.27 32.62
8

9. In Millions of USD (except for
per share items)
52 weeks
ending 2009-
06-27
52 weeks
ending 2008-
06-28
52 weeks
ending 2007-
06-30
52 weeks
ending 2006-
07-01
Gain (Loss) on Sale of Assets - - - -
Other, Net - - - -
Income Before Tax 977.08 1,194.95 1,034.67 747.33
Income After Tax 623.37 783.04 636.53 463.84
Minority Interest - - 0.00 0.00
Equity In Affiliates - - - -
Net Income Before Extra. Items 623.37 783.04 636.53 463.84
Accounting Change - - - -
Discontinued Operations - - - -
Extraordinary Item - - - -
Net Income 623.37 783.05 663.66 494.28
Preferred Dividends - - - -
Income Available to Common
Excl. Extra Items
623.37 783.04 636.53 463.84
Income Available to Common
Incl. Extra Items
623.37 783.05 663.66 494.28
Basic Weighted Average Shares - - - -
Basic EPS Excluding
Extraordinary Items
- - - -
Basic EPS Including
Extraordinary Items
- - - -
Dilution Adjustment - - - -
Diluted Weighted Average Shares 325.62 360.33 377.36 388.50
Diluted EPS Excluding
Extraordinary Items
1.91 2.17 1.69 1.19
Diluted EPS Including
Extraordinary Items
- - - -
Dividends per Share - Common
Stock Primary Issue
0.07 0.00 0.00 0.00
Gross Dividends - Common Stock - - - -
Net Income after Stock Based
Comp. Expense
- - - -
Basic EPS after Stock Based
Comp. Expense
- - - -
Diluted EPS after Stock Based
Comp. Expense
- - - -
Depreciation, Supplemental - - - -
Total Special Items - - - -
Normalized Income Before
Taxes
- - - -
9

10. In Millions of USD (except for
per share items)
52 weeks
ending 2009-
06-27
52 weeks
ending 2008-
06-28
52 weeks
ending 2007-
06-30
52 weeks
ending 2006-
07-01
Effect of Special Items on Income
Taxes
- - - -
Income Taxes Ex. Impact of
Special Items
- - - -
Normalized Income After Taxes - - - -
Normalized Income Avail to
Common
- - - -
Basic Normalized EPS - - - -
Diluted Normalized EPS 1.91 2.17 1.69 1.19
b. Balance Sheet
10

11. As you see, from 2005 to 2008 the total assets incrased except for a slight drop in 2008.
In addition, the debt to assets percentage decreased each year except for a sight incrase in 2009.
In Millions of USD (except for per
share items)
As of 2009-
06-27
As of 2008-
06-28
As of 2007-
06-30
As of 2006-
07-01
Cash & Equivalents 800.36 698.90 556.96 143.39
Short Term Investments - - 628.86 394.18
Cash and Short Term Investments 800.36 698.90 1,185.82 537.57
Accounts Receivable - Trade, Net 108.71 106.74 107.81 84.36
Receivables - Other - - - -
Total Receivables, Net 108.71 106.74 107.81 84.36
Total Inventory 326.15 318.49 291.19 233.49
Prepaid Expenses 48.34 65.57 16.14 41.04
Other Current Assets, Total 112.85 169.52 139.23 78.02
Total Current Assets 1,396.41 1,359.22 1,740.20 974.48
Property/Plant/Equipment, Total -
Gross
978.00 754.77 599.53 515.34
Goodwill, Net 283.39 249.12 213.79 227.81
Intangibles, Net 9.79 9.79 9.79 9.79
Long Term Investments 6.00 8.00 0.00 0.00
Other Long Term Assets, Total 275.77 157.00 117.27 115.91
Total Assets 2,564.34 2,247.35 2,449.51 1,626.52
Accounts Payable 103.03 134.73 109.31 79.82
Accrued Expenses 287.71 310.39 241.97 192.82
Notes Payable/Short Term Debt 44.56 5.54 0.00 0.00
Current Port. of LT Debt/Capital Leases 0.51 0.28 0.23 0.17
Other Current liabilities, Total 23.84 0.00 56.49 69.02
Total Current Liabilities 459.65 450.94 408.00 341.82
Long Term Debt 25.07 2.58 2.87 3.10
Capital Lease Obligations - - - -
Total Long Term Debt 25.07 2.58 2.87 3.10
Total Debt 70.14 8.40 3.10 3.27
Deferred Income Tax 0.00 25.37 36.45 31.66
Minority Interest - - - -
Other Liabilities, Total 383.57 278.09 91.85 61.21
Total Liabilities 868.29 756.98 539.16 437.79
Redeemable Preferred Stock, Total - - - -
Preferred Stock - Non Redeemable, Net - - - -
Common Stock, Total 3.18 3.37 3.73 3.70
Additional Paid-In Capital 1,189.06 1,115.04 978.66 775.21
11

12. In Millions of USD (except for per
share items)
As of 2009-
06-27
As of 2008-
06-28
As of 2007-
06-30
As of 2006-
07-01
Retained Earnings (Accumulated
Deficit)
499.95 353.12 940.76 417.09
Treasury Stock - Common - - - -
Other Equity, Total 3.85 18.84 -12.79 -7.26
Total Equity 1,696.04 1,490.38 1,910.35 1,188.73
Total Liabilities & Shareholders'
Equity
2,564.34 2,247.35 2,449.51 1,626.52
Shares Outs - Common Stock Primary
Issue
- - - -
Total Common Shares Outstanding 318.01 336.73 372.52 369.83
c. Cash Flow
In Millions of USD (except for
per share items)
52 weeks
ending 2009-
06-27
52 weeks
ending 2008-
06-28
52 weeks
ending 2007-
06-30
52 weeks
ending 2006-
07-01
Net Income/Starting Line 623.37 783.05 663.66 494.28
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13. In Millions of USD (except for
per share items)
52 weeks
ending 2009-
06-27
52 weeks
ending 2008-
06-28
52 weeks
ending 2007-
06-30
52 weeks
ending 2006-
07-01
Depreciation/Depletion 123.01 100.70 80.83 64.99
Amortization - - - -
Deferred Taxes 13.66 -16.91 7.28 -23.13
Non-Cash Items 69.32 44.01 -6.53 -29.90
Changes in Working Capital -20.21 12.50 35.92 90.12
Cash from Operating
Activities
809.15 923.36 781.17 596.37
Capital Expenditures -240.33 -174.72 -140.60 -133.42
Other Investing Cash Flow
Items, Total
-24.40 620.16 -235.18 -47.32
Cash from Investing Activities -264.73 445.44 -375.78 -180.74
Financing Cash Flow Items -0.87 23.25 48.44 99.34
Total Cash Dividends Paid - - - -
Issuance (Retirement) of Stock,
Net
-446.42 -1,253.28 -37.88 -513.72
Issuance (Retirement) of Debt,
Net
7.21 -0.23 -0.17 -11.87
Cash from Financing Activities -440.08 -1,230.26 10.39 -426.25
Foreign Exchange Effects -2.88 3.41 -2.22 -0.56
Net Change in Cash 101.46 141.95 413.57 -11.18
Cash Interest Paid, Supplemental 2.01 1.17 1.10 205.45
Cash Taxes Paid, Supplemental 336.09 463.69 370.19 1.16
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14. IV. Recent News
a. Prediction of increase in earnings (12/14/09): The earnings for the current fiscal
year, ending June 2010, could increase 7% over its 2009 results, to $664 million,
or $2.07 a share, on slightly higher revenue of $3.4 billion. Sales at stores open at
least a year could rise 3%, after a steep 7% drop in fiscal '09.3
With the prediction
of growth in earnings and sales, Coach looks strong.
b. International Expansion (10/20/09): Coach will further its expansion by
expanding in China, which has a 1.33+ billion population. Coach plans to open its
first flagship shop in China, a 7,000 square foot store in Shanghai next year, and
open an Asian distribution center to support and tap into demand in the world’s
third-largest economy.4
I feel this move will have a great effect on Coach’s future
growth and revenue. The money is in China, and Coach is going where the money
is. This is another reason why I feel Coach is a great buy.
c. Strong Sales Overseas, and Prediction of strong future sales overseas
(12/14/09): Coach is also expanding aggressively overseas in markets such as
China and Japan; China's handbag and accessories market is growing by a
stunning 40% a year. The company generated $54 million of sales last year in
China, where it has 33 stores; it expects to add 15 new stores in fiscal 2010.
Frankfort, Coach CEO, has said the company's official projection, is that in five
years' time Coach will have $250 million in annual revenue from China, "is
extremely conservative." Shapira, A Goldman analyst, projects Chinese sales will
grow to $400 million in the next five years, adding 34 cents a share in earnings.5
3
Williams, Christopher
4
Cheng, Andria
5
Williams, Christopher
14

15. Coach’s new plans of expansion will greatly increase the stock’s value in the
months and year to come, that’s why Coach should be bought now.
d. Growth in sales (10/20/09): Frankfurt, Coach CEO, estimated the total marker
for imported bags and accessories in China grew by 40%.6
The growth for
imported bags and accessories in China in addition to Coach expanding in China
it a great thing, Coach will bring in lots more revenue in the years to come.
e. New Stores (12/14/09): In fiscal 2010 Coach plans to open 20 new stores in the
U.S. and Canada, atop its existing base of 340. Coach also has 116 factory stores
in North America.7
Besides international expansion, Coach will also open new
stores domestically to supply the demand of its products.
f. Goldman, Sachs & Co. Upgraded Coach to a Buy (12/14/09): Adrianne
Shapira, an analyst at Goldman Sachs, recently upgraded Coach to Buy from
Neutral, saying a return to high-end spending could boost the stock to 42 in the
next year. "We do not believe [Coach's] sector-leading 9% square-footage growth
and exposure to outsized growth in China is adequately reflected in its shares,"
says Shapira.8
Goldman, Sachs & co. and a lot of other analyst also feel that
Coach is a buy because of its future growth and sales.
g. Raised to Buy by Merrill Lynch and Bank of America (9/1/09): Coach was
raised to a buy by Merrill Lynch. Coach was upgraded to a buy from neutral Bank
of America-Merrill Lynch Tuesday, September 1st
, 2009. The upscale handbag
seller has implemented a near-term strategy of lowering prices that's off to a
successful start, the brokerage firm said in a research note. Coach has introduced
the Poppy collection and tweaked its existing products that resulted in half of its
assortments priced below $300, the note said.9
Merrill Lynch and Bank of
America also feel that Coach is a great buy because of the company’s new
strategies, I agree.
h. Increase in handbag sales due to new line and pricing strategy (10/20/09):
"The launch of Poppy in July, along with our new pricing strategy, which gives
the consumer more choices at prices she is willing to pay or is able to afford,
resulted in an increased sales penetration of handbags," Lew Frankfort, Coach's
chairman and chief executive, said in the earnings statement.10
The move comes at
the right time. The holidays are right around the corner, and shoppers are
expected to be cautious again when it comes to spending. Coach introduced a new
line of bags, the “Poppy” line which has increased the sales of handbags since it
was introduced.
6
Cheng, Andria
7
Williams, Christopher
8
Williams, Christopher
9
Cheng, Andria
10
Moore, Angela
15

16. i. Significant Investment in Marketing (10/20/09): Coach also plans on making a
“significant investment” in marketing during the holiday.11
I feel this move will
increase Coach’s sales, thus increasing value of the stock. The more people that
now about Coach’s new products, the more company sales should increase.
j. Profit exceed analyst estimates (10/20/09): Coach’s profit exceeded estimates.
Sales rose to $761.4 million in the quarter ended Sept. 26th
from $752.5 million a
year earlier.12
Coach is growing greatly, this just shows Coach’s growth. This is a
great stock to invest in.
k. Strong Growth & Expansion (12/14/09): Chairman and CEO Lew Frankfort
told Barron's that Coach can increase sales by about 10% a year, and earnings at
an even faster pace once the economy recovers. "We're a growth story," he says,
citing productivity gains in the U.S. and the potential to expand overseas,
particularly China. "We have an enormous runway ahead."13
Coach will be
expanding, and has been expanding and will increase in value, I see no reason not
to buy Coach.
V. Key Statistics14
a. Sector: Consumer Goods
b. Industry: Textile-Apparel Footwear & Accessories
c. Last Trade: $36.57 (12/17/09)
d. Price bought Coach at: $32.38 (10/29/09)
i. I explained how much of a great buy Coach was from my presentation and
the class understood how good of a stock Coach was and decided to
purchase it. Since then, Coach as increased from our purchase price of
$32.38 to $36.57 per share.
e. 52 Week High/Low: $11.41/$37.35
i. From a low of $11.41 on March 6th
, 2009 to $36.57 currently, Coach’s
stock price has been increasing to reflect the stock’s increasing value.
f. Beta: 1.69
i. Even though Coach has a high beta of 1.69, we should take into
consideration that Beta looks at history, and is not always an accurate
predictor of the future. In addition, Beta doesn’t account for changes in the
works such as new lines of business or industry trends like Coach has
implemented.
g. EPS: 1.918
11
Cheng, Andria
12
Cheng, Andria
13
Williams, Christopher
14
Yahoo Finance
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17. i. When compared to its industry, which only has an EPS of 0.39, you can
see how Coach’s Earnings per Share outperforms the industry.
h. P/E: 19.07
i. The industry average P/E ratio is 19.65. This can mean that Coach may be
slightly undervalued and can possibly surpass the industry average P/E
showing that Coach is a “Best Of Breed” stock, as well as showing high-
future growth.
i. Growth Rates
i. Previous 5 years: 17.529%
ii. This Year: 8.9%
iii. Current Quarter: 7.5%
iv. Next Quarter: 13.2%
v. Next Year: 7.5%
vi. Next 5 years: 13.89%
1. As shown, there is a great growth outlook for Coach this year, this
quarter, next quarter, next year, and the next 5 years.
VI. Financial Ratios/Numbers15
:
a. Profit Margin: 19.09%
b. Operating Margin: 30.10%
c. Return on Assets: 24.85%
d. Return on Equity: 28.75%
e. Revenue: 3.24 Billion
f. Revenue per Share: 10.113
g. Gross Profit: 2.32 Billion
i. From these numbers you can see that Coach is very financially stable.
15
Yahoo Finance
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18. VII. Valuation
a. Last Trade: $36.57 (12/17/09)
b. MoneyChimp16
(as of 12/16/09) valued Coach at $41.14
c. Damodaran:
i. How Damodaran Works- Dividend Discount Model
The Dividend Discount Model is a way of valuing stock of a company
based on the theory that a stock is worth the discounted sum of all of its future
dividend payments. The Dividend Discount Model is used to valuate stocks based
on the net present value of the future dividends. The two stage model assumes
that the company will experience a period of high-growth followed by a decline to
a stable growth period. The two-stage model has an unstable initial growth rate,
and can be either positive or negative. This initial phase lasts for a specified time
and is followed by stable growth which lasts forever. The three-stage model has
an initial phase of stable high growth that lasts for a certain period. In the second
phase the growth rate declines linearly until it reaches the final stage, the stable
growth rate.
Financial theory states that the value of a stock is the worth all of the
future cash flows expected to be generated by the firm discounted by an
appropriate risk-adjusted rate. The idea of the dividend discount model is to use
dividends as a measure of the future cash flows returned to the shareholder.
16
MoneyChimp
18

19. The company’s intangibles, often a key driver in the growth rate of the
company, are absent from the dividend discount models.
The Two-Stage Dividend Discount Model values the equity in a firm, with
two stages of growth, an initial period of higher growth and a subsequent period
of stable growth. The model assumes that the firm is expected to grow at a higher
growth rate in the first period, then the growth rate will drop at the end of the first
period to stable growth rate, and that the dividend payout ratio is consistent with
the expected growth rate. The three-stage dividend discount model is designed to
value the equity in a firm with three stages of growth, an initial period of growth,
a transition period of declining growth, then a final period of stable growth. These
dividend discount model’s calculate the value of the stock and the price of the
stock at the end of the growth phase, as well as other important data such as the
cost of equity, the fundamental growth, the payout ratio for the high growth
phase, dividends for the high growth phase, and the present value of dividends in
high growth phase based on your input of current EPS and Dividends per share,
the length of the extraordinary growth period, the beta of the stock, the risk free
rate and risk premium, the EPS from five years ago, the ROE, Historical Growth
rate, fundamental estimate of growth, and the growth rate in a stable period.
i. Last Trade: $36.57 (12/17/09)
ii. Two Stage Dividend Discount Model17
(as of 12/16/09)
1. Price at the end of growth phase: $49.32
2. Value of the stock: $23.84
iii. Three Stage Dividend Discount Model18
(as of 12/16/09)
3. Price at the end of growth phase: $94.27
4. Value of the stock: $30.65
d. SmartMoney PriceCheck19
:
i. Last Trade: $36.57 (12/17/09)
ii. Non Adjusted for Stock’s Risk: $42.49
iii. Adjusted for Stock’s Risk: $25.55
1. The when adjusted for stock’s risk, PriceCheck values COH low.
This can be because Beta looks at history, and history is not always
an accurate predictor of the future. Also, Beta doesn’t account for
changes in the works such as new lines of business and industry
trends. So keep this in mind, because even though Coach is valued
at $25.55 when adjusted for risk it is still a great stock because
Beta doesn’t take some important factors into consideration.
17
Damodaran Online
18
Damodaran Online
19
PriceCheck
19

20. VIII. Price Targets/Estimates
a. Last Trade: $36.57 (12/17/09)
b. S&P- 12 Month Taget Price: $42.00 (12/19/09)
c. Barclays Capital: $40.00 (10/19/09)
d. Jefferies & Co.: $40.00 (10/30/09)
e. MarketWatch- Average Target Price: $39.50 (12/22/09)
f. Yahoo Finance- 1 year target estimate: $38.32 (12/22/09)
g. Stifel Nicolaus: $37.00 (10/14/09)
h. UBS: $37.00 (10/13/09)
i. MsnMoney (12/22/09)
i. Last Trade: $36.57 (12/17/09)
ii. 6/2010 Estimate Low/High Price Range: $38.99/$42.10
iii. 6/2010 Average Estimate Price: $40.16
iv. 6/2011 Estimate Low/High Price Range: $41.13-45.78
v. 6/2011 Average Estimate Price: $44.04
vi. 6/2010 Estimate Price using industry’s current multiple (P/E): $52.37
vii. 6/2010 Estimate Price using industry’s current multiple (P/E): $57.43
20

21. IX. Analyst Reccomendations:
a. S&P (12/17/09): 5 Stars (Strong Buy)
b. StockScouter (10/29/09): 9/10
c. Merrill Lynch: Buy (9/1/09)
d. Goldman Sachs, & Co.: Buy (12/14/09)
e. Jefferies & Co.: Buy (10/30/09)
f. Stifel Nicolaus: Buy (10/14/09)
g. AOL Money & Finance: Buy (12/22/09)
h. SmartMoney.com: (12/22/09)
i. 10 Strong Buys
ii. 3 Moderate Buys
iii. 8 Holds
iv. NO Sell’s
21

22. i. MarketWatch: (12/22/09)
i. 12 Buys
22

23. ii. 2 Overweights
iii. 9 Holds
iv. NO Sell’s
23

24. j. S&P: (12/19/09)
i. S&P shows a few of the companies who cover Coach and their
recommendations.
ii. 8 companies say Buy
iii. 9 Companies say Buy/Hold
iv. 7 Companies say Hold
v. NO companies say Weak Hold or Sell
24

25. X. Comparison
a. Growth Estimates compared with industry, sector, & S&P 500
25

26. As you see Coach’s growth for the current quarter, 7.5% outperformed the
S&P 500, -33.9%. This year alone, Coach’s growth, 8.9% outperformed its
industry, 2.5% and the S&P 500, -0.4%. In addition, Coach’s growth for the next
five years, 13.89% is estimated to outperform the Industry, 12.03%.
b. Competitors
26

27. As you see, the P/E ratio of Coach is 19.07, whereas the industry average
is 19.65. This can be that Coach might be slightly undervalued until it reaches the
P/E of the industry average. I believe that Coach’s P/E will surpass the industry
average P/E thus showing that Coach is a “Best of Bread” stock, as well as show
high-future growth.
Also, Coach’s EPS is 1.918, whereas the Industry average is only 0.39. As
you can see, Coach heavily outperforms the industry.
XI. Graphs
a. 1 Month Stock Price
Over the last month, the price of COH has been increasing overall
27

28. b. 6 Month Stock Price
Over the last 6 months, the price of COH has been increasing overall
c. 1 Year Stock Price
Over the last year, the price of COH has been increasing overall,
especially after recovering in a dip in stock price at the beginning of
March.
28

29. d. 5 Year Stock Price
My research leads me to believe that COH will continue to increase and
reach over $50 a share like it did in back 2007 to 2008
XII. This is why it’s hot
a. My Price Target: $42.00
b. My Recommendation: 5 Stars- BUY BUY BUY!!!
c.
29

30. Coach is just a great stock from looking at many different aspects. I
presented Coach to the class and the class purchased it at $32.38 a share on
10/29/09, and since then it has increased to $36.57 per share. Coach is sizzling!
As of June 27, 2009, Coach operated 300 retail and 111 factory leased
stores in North America alone, 155 department store shop-in-shops, retail stores,
and factory stores in Japan, and 28 Coach-operated department store shop-in-
shops, retail stores, and factory stores in Hong Kong, Macau, and Mainland
China. Coach also sells its products on the Internet and the Coach catalog, as
well as international department stores in over 20 different countries.
In 2009, Coach had revenues of $3,230,470,000, an increase of 1.56%
from 2008, an increase of 23.66% from 2007, and an increase of 58.74% from
2006. Coach’s profit margin is 19.09%, its operating margin is 30.10%, its
return on assets is 24.85%, and its return on equity is 28.75%. Coach also
manages to have $10.113 in revenues per shares and a gross profit of $2.32
billion. Coach also has $995 million in cash as of September 30, 2009. Coach is
very, very financially stable and is only increasing its growth and success.
Coach’s 52 week low is $11.41 per share and its 52 week high was
$37.35. Coach’s last trade was $36.57 on 12/17/2009, and is on its way to
increasing in stock price. MoneyChimp valued Coach at $41.14. Damodaran’s
two stage dividend discount model valued coach at $23.84, but $49.32 after the
growth phase. Damodaran’s three stage dividend discount model valued coach at
$30.65, but $94.27 after the growth phase. SmartMoney PriceCheck valued
Coach at $42.49 when not adjusting the stock’s risk. After adjusting the stock’s
risk, PriceCheck valued coach at $25.55. I don’t think this is accurate, because
even though the beta of Coach is high, 1.69, beta looks at history, and history is
not always an accurate predictor of the future. Also, Beta doesn’t account for
changes in the works such as new lines of business which Coach has
implemented, and industry trends. As you can see, Coach is undervalued when
comparing its last trade price with its valuation’s of MoneyChimp,
SmartMoney’s PriceCheck when not adjusting the stock’s risk, and
Damodaran’s two stage and three stage dividend discount model’s after the
growth phase.
Many other analysts also feel Coach will increase just as I do. Standard &
Poor’s recommend Coach 5 stars, a strong buy. StockScouter gave Coach a 9/10.
Both Merrill Lynch and Goldman Sachs, & Co. upgraded Coach to a buy.
Jefferies & Co. and Stifel Nicolaus also upgraded Coach to a buy. In addition,
AOL Money & Finance recommended Coach as a buy. 13 out of 21 analysts at
SmartMoney recommended Coach a buy, with 10 of those a strong buy and the
30

31. rest a hold. No analysts recommended to sell Coach. In addition, 12 out of 23
analysts at MarketWatch recommended Coach a buy, and none of the analysts
recommended to sell. Also, S&P looked at 24 companies offering coverage on
Coach from Barclays to Goldman, Sach’s & Co. to HSBC to JP Morgan to
Merrill Lynch to UBS and 8 out of 24 companies recommend Coach a buy, 9 a
buy/hold, and 7 a hold with no companies recommending to sell. Many analysts
also have a high target price for Coach. The last trade price of Coach was
$36.57. S&P’s 12 month target price is $42.00, while both Barclays capital and
Jefferies & Co. are $40.00. The average target price of all analysts as stated by
MarketWatch is $39.50. In addition, MSNmoney estimates a high price of
$42.10 next year, with an average price of $40.16. MSN Money also estimates a
high price of $45.78 in 2011, and an average price of $44.04 in 2011. In
Addition, using the industry’s current multiple P/E, coach is estimated to be at
$52.37 a share next year and $57.43 in 2011.
Coach is estimated to grow 8.9% this year, 7.5% this quarter, 13.2% next
quarter, 7.5% next year, and %13.89% in 5 years. Coach’s growth for the current
quarter, 7.5% outperformed the S&P 500, who was -33.9%. This year alone,
Coach’s growth, 8.9% outperformed its industry, who grew only 2.5% and the
S&P 500, at -0.4%. In addition, Coach’s growth for the next five years, 13.89%
is estimated to outperform the Industry, which is estimated at 12.03%. the P/E
ratio of Coach is 19.07, whereas the industry average is 19.65. I believe that this
means that Coach might be slightly undervalued until it reaches the P/E of the
industry average. I believe that Coach’s P/E will surpass the industry average
P/E thus showing that Coach is a “Best of Bread” stock, as well as show high-
future growth. Also, Coach’s EPS is 1.918, whereas the Industry average is only
0.39. As you can see, Coach heavily outperforms the industry. In addition, over
the last month the stock price of Coach has been increasing overall. In the last 6
months, the price of coach has been increasing. In Addition, in the last year, the
stock price of coach has been increasing overall.
I feel that Coach is a great stock to own because of these reasons. In
addition, Coach will be internationally expanding. Coach will further expand in
China, who has a population of 1.33+ billion people. Coach plans to open its
first flagship shop in China, a 7,000 square foot store in Shanghai next year, and
open an Asian distribution center to support and tap into demand in the world’s
third-largest economy. The money is in China, and Coach is going where the
money is. Coach also expects to add 15 other new stores in China by 2010, and
the company's official projection, is that in five years' time Coach will have
$250 million in annual revenue from China. Shapira, A Goldman analyst,
projects Chinese sales will grow to $400 million in the next five years. Also, the
31

32. CEO of Coach estimated that the total for imported bags and accessories in
China grew 40%. Coach also introduced a new line, the Poppy Line, which
increased the sales of handbags. These new product launches and store openings
make Coach a great stock to own. Besides expanding international, Coach also
plans to open 20 new stores in the U.S. and Canada, atop its existing 340. Coach
also plans on making a significant investment in marketing during the holiday.
Coach’s profits exceeds estimates, Sales rose to $761.4 million in the quarter
ended Sept. 26th
from $752.5 million a year earlier, Chairman and CEO Lew
Frankfort told Barron's that Coach can increase sales by about 10% a year, and
earnings at an even faster pace once the economy recovers. In addition, the
earnings for the current fiscal year, ending June 2010, could increase 7% over its
2009 results, to $664 million, or $2.07 a share, and on slightly higher revenue of
$3.4 billion. These recent news and important factors will have a great effect on
Coach’s increased future success and earnings.
In addition, StockScouter says that Coach’s most recent quarterly earnings
report was significantly higher than analysts’ consensus forecast, more than one
analyst has modestly increased quarterly earnings estimates for Coach, shares of
Coach are under heavy accumulation by financial institutions, the StockScouter
measure of relative price change and consistency is very high, and the previous
day's closing price for COH was slightly above its 50-day moving average.
Coach is sizzling hot! From its increase in price since the class purchased it, to
the hundreds of stores it owns, to its financial strength, to its high valuations and
price targets, to many analysts recommending to buy, to its high growth
estimates, to its new strategies and business lines, its new poppy line, to its
international expansion I feel Coach is an excellent stock to own.
XIII. Tables, Illustrations, Charts, & Graphs
a.
32

33. b.
33

34. Two-Stage Dividend Discount Model
This model is designed to value the equity in a firm, with two stages of growth, an initial
period of higher growth and a subsequent period of stable growth.
Assumptions
1. The firm is expected to grow at a higher growth rate in the first period.
2. The growth rate will drop at the end of the first period to the stable growth rate.
3. The dividend payout ratio is consistent with the expected growth rate.
The user has to define the following inputs:
1. Length of high growth period
2. Expected growth rate in earnings during the high growth period.
3. Dividend payout ratio during the high growth period.
4. Expected growth rate in earnings during the stable growth period.
5. Expected payout ratio during the stable growth period.
6. Current Earnings per share
7. Inputs for the Cost of Equity
Inputs to the model
Current Earnings per share = $1.92 (in currency)
Current Dividends per share = $0.22 (in currency)
Enter length of extraordinary growth period = 5 (in years)
Do you want to enter cost of equity directly? No (Yes or No)
If yes, enter the cost of equity = (in percent)
If no, enter the inputs to the cost of equity
Beta of the stock = 1.69
Riskfree rate= 2.00% (in percent)
Risk Premium= 9.00% (in percent)
Do you want to use the historical growth rate? Yes (Yes or No)
If yes, enter EPS from five years ago = $0.71 (in currency)
Do you have an outside estimate of growth ? Yes (Yes or No)
If yes, enter the estimated growth: 13.89% (in percent)
34

35. Do you want to calculate the growth rate from fundamentals? Yes (Yes or No)
If yes, enter the following inputs:
Net Income Currently = $623,369,000.00 Last year (in currency)
Book Value of Equity = $1,696,042,000.00 $1,515,820,000.00 (in currency)
Tax Rate on Income= 40.00% (in percent)
The following will be the inputs to the fundamental growth formulation:
ROE = 41.12% (in percent)
Retention = 88.54% (in percent)
Do you want to change any of these inputs for the high growth period? Yes (Yes or No)
If yes, specify the values for these inputs (Please enter all variables)
ROE = 41.12% (in percent)
Retention = 88.54% (in percent)
Do you want to change any of these inputs for the stable growth period? Yes (Yes or No)
If yes, specify the values for these inputs
ROE = 41.12% (in percent)
Specify weights to be assigned to each of these growth rates:
Historical Growth Rate = 17.53% (in percent)
Outside Prediction of Growth = 13.89% (in percent)
Fundamental Estimate of Growth = 68.58% (in percent)
Enter growth rate in stable growth period? 3.00% (in percent)
Stable payout ratio from fundamentals is = 92.71% (in percent)
Do you want to change this payout ratio? No (Yes or No)
If yes, enter the stable payout ratio= (in percent)
Will the beta to change in the stable period? No (Yes or No)
If yes, enter the beta for stable period =
Before reviewing the output, check to see if any warnings appear on the next page.
Warnings
35

36. Output from the program
Cost of Equity = 17.21%
Current Earnings per share= $1.92
Growth Rate in Earnings per share
Growth Rate Weight
Historical Growth = 22.01% 17.53%
Outside Estimates = 13.89% 13.89%
Fundamental Growth = 36.41% 68.58%
Weighted Average 30.76%
Payout Ratio for high growth phase= 11.46%
The dividends for the high growth phase are shown below (upto 10 years)
1 2 3 4 5
Dividends $0.29 $0.38 $0.49 $0.64 $0.84
Growth Rate in Stable Phase = 3.00%
Payout Ratio in Stable Phase = 92.71%
Cost of Equity in Stable Phase = 17.21%
Price at the end of growth phase = $49.32
Present Value of dividends in high growth phase = $1.55
Present Value of Terminal Price = $22.29
Value of the stock = $23.84
Estimating the value of growth
Value of assets in place = $1.28
Value of stable growth = $0.32
Value of extraordinary growth = $22.25
Value of the stock = $23.84
36

37. Growth Rate Extraordinary Growth period Value
: First phase Growth 0 $11.31
20.76% $14.59 1 $13.04
21.76% $15.25 2 $14.98
22.76% $15.93 3 $17.14
23.76% $16.64 4 $19.56
24.76% $17.36 5 $22.25
25.76% $18.12 6 $25.25
26.76% $18.89 7 $28.60
27.76% $19.69 8 $32.33
28.76% $20.52 9 $36.50
29.76% $21.37 10 $41.15
30.76% $22.25
31.76% $23.15
32.76% $24.08
33.76% $25.04
34.76% $26.03
35.76% $27.05
36.76% $28.10
c.
37

38. THREE-STAGE DIVIDEND DISCOUNT MODEL
This model is designed to value the equity in a firm with three stages of
growth - an initial period of high growth, a transition period of declining
growth and a final period of stable growth.
Assumptions
1. The firm is assumed to be in an extraordinary growth phase currently.
2. This extraordinary growth is expected to last for an initial period that has to be specified.
3. The growth rate declines linearly over the transition period to a stable growth rate.
4. The firm's dividend payout ratio changes consistently with the growth rate.
The user should enter the following inputs:
1. Length of each growth phase
2. Growth rate in each growth phase
3. Dividend payout ratios in each growth phase.
4. Costs of Equity in each growth phase
Inputs to the model
Current Earnings per share = $1.92 (in currency)
Current Dividends per share = $0.22 (in currency)
Do you want to enter cost of equity directly? No (Yes or No)
If yes, enter the cost of equity = (in percent)
If no, enter the inputs to the cost of equity
Beta of the stock = 1.69
Riskfree rate= 2.00% (in percent)
Risk Premium= 9.00% (in percent)
Growth Rate during the initial high growth phase
Enter length of extraordinary growth period = 5 (in years)
Do you want to use the historical growth rate? Yes (Yes or No)
If yes, enter EPS from five years ago = $0.71 (in currency)
Do you have an outside estimate of growth ? Yes (Yes or No)
If yes, enter the estimated growth: 13.89% (in percent)
38

39. Do you want to calculate the growth rate from fundamentals? No (Yes or No)
If yes, enter the following inputs:
Net Income Currently = $623,369,000.00 Last year (in currency)
Book Value of Equity = $1,696,042,000.00 $1,515,820,000.00 (in currency)
Tax Rate on Income= 40.00% (in percent)
The following will be the inputs to the fundamental growth formulation:
ROE = 41.12% (in percent)
Retention = 88.54% (in percent)
Do you want to change any of these inputs for the high growth period? No (Yes or No)
If yes, specify the values for these inputs (Please enter all variables)
ROE = 41.12% (in percent)
Retention = 88.54% (in percent)
Do you want to change any of these inputs for the stable growth period? no (Yes or No)
If yes, specify the values for these inputs
ROE = 41.12% (in percent)
(in percent)
Specify weights to be assigned to each of these growth rates:
Historical Growth Rate = 17.53% (in percent)
Outside Prediction of Growth = 13.89% (in percent)
Fundamental Estimate of Growth = 68.58% (in percent)
Growth Rate during the transition period
Enter length of the transition period = 5 (in years)
Do you want the payout ratio to adjust gradually to stable payout? yes (Yes or No)
If no, enter the payout ratio for the transition period = (in percent)
Do you want the beta to adjust gradually to stable beta? yes (Yes or No)
If no, enter the beta for the transition period =
Growth Rate during the stable phase
Enter growth rate in stable growth period? 3.00% (in percent)
Stable payout ratio from fundamentals is = 92.7% (in percent)
Do you want to change this payout ratio? No (Yes or No)
If yes, enter the stable payout ratio= (in percent)
Will the beta to change in the stable period? No (Yes or No)
If yes, enter the beta for stable period =
39

40. Output from the program
Initial High Growth Phase
Cost of Equity = 17.21%
Current Earnings per share= $1.92
Growth Rate in Earnings per share - Initial High Growth phase
Growth Rate Weight
Historical Growth = 22.01% 17.53%
Outside Estimates = 13.89% 13.89%
Fundamental Growth = 36.41% 68.58%
Weighted Average 30.76%
Payout Ratio for high growth phase= 11.46%
The dividends for the high growth phase are shown below (upto 10 years)
Year 1 2 3 4 5
Earnings $2.51 $3.28 $4.29 $5.61 $7.34
Dividends $0.29 $0.38 $0.49 $0.64 $0.84
Present Value $0.25 $0.27 $0.31 $0.34 $0.38
Transition period (upto ten years)
Year 6 7 8 9 10
Growth Rate 25.21% 19.66% 14.10% 8.55% 3.00%
Payout Ratio 27.71% 43.96% 60.21% 76.46% 92.70%
Earnings $9.19 $11.00 $12.55 $13.62 $14.03
Dividends $2.55 $4.83 $7.55 $10.41 $13.01
Beta 1.69 1.69 1.69 1.69 1.69
Cost of Equity 17.21% 17.21% 17.21% 17.21% 17.21%
Present Value $0.98 $1.59 $2.12 $2.49 $2.66
Stable Growth Phase
Growth Rate in Stable Phase = 3.00%
Payout Ratio in Stable Phase = 92.70%
Cost of Equity in Stable Phase = 17.21%
Price at the end of growth phase = $94.27
Present Value of dividends in high growth phase = $1.55
Present Value of dividends in transition phase = $9.84
Present Value of Terminal Price = $19.26
Value of the stock = $30.65
XIV. Works Cited Page
40

41. Cheng, Andria. "Coach profit, sales exceed estimates." MarketWatch.Com. 20 Oct. 2009. Web.
<http://www.marketwatch.com/story/coach-profit-sales-exceed-estimates-2009-10-
20>.
Cheng, Andria. "Coach raised to buy by Merrill Lynch." MarketWatch.Com. 1 Sept. 2009. Web.
<http://www.marketwatch.com/story/coach-raised-to-buy-by-merrill-lynch-2009-09-
01>.
Cheng, Andria. "Coach says profit falls 3%, eyeing further China expansion." MarketWatch.Com.
20 Oct. 2009. Web. <http://www.marketwatch.com/story/coach-profit-and-sales-
exceed-estimates-2009-10-20>.
Finviz.com: Financial Visualizations. Web. <http://finviz.com/>.
Google Finance. Web. <http://www.google.com/finance>.
"How Much are Stocks Worth." MoneyChimp. Web.
<http://moneychimp.com/articles/valuation/stockvalue.htm>.
MarketWatch. Web. <http://www.marketwatch.com/>.
Moore, Angela. "The real world is a nice place to be- Commentary: Coach gives the people what
they want." MarketWatch.Com. 20 Oct. 2009. Web.
<http://www.marketwatch.com/story/coach-takes-handbags-to-the-people-2009-10-
20>.
41

42. MSN Money. Web. <http://moneycentral.msn.com/home.asp>.
"Price Check Calculator." SmartMoney. Web. <http://www.smartmoney.com/pricecheck/>.
SmartMoney. Web. <http://www.smartmoney.com/>.
"Spreadsheet Programs." Damodaran Online. Web. <http://pages.stern.nyu.edu/~adamodar/>.
Standard & Poor's NetAdvantage. Web.
<http://www.netadvantage.standardandpoors.com.rlib.pace.edu/NASApp/NetAdvantag
e/index.do>.
"StockScouter." MSN Money. Web.
<http://moneycentral.msn.com/investor/StockRating/srsmain.asp>.
Williams, Christopher C. "Success Is Always in Style." Barrons.com. 14 Dec. 2009. Web.
<http://online.barrons.com/article/SB126058336647088421.html>.
Yahoo Finance. Web. <http://finance.yahoo.com/>.
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