Option Trade 
Coach Inc (NYSE:COH) Calls 
Tuesday, November 24, 2015

**OPTION TRADE: Buy the COH Jan 2016 32.000 call (COH160115C00032000) at approximately $1.10. Place a pre-determined sell at $2.20.

Note: No protective stop losses added -- but if you wish to do so make it $0.45.

by Ian Harvey

November 24, 2015

Coach Inc (NYSE: COH), a business in transition as a marketer of accessories and gifts for women and men, will get a boost from Black Friday and Cyber Monday after having stock prices depressed due to an ugly earnings season for retail, and where generally most retail companies have faulted.

Coach offers a re-platformed product with clear creative direction that is design led, comprising innovative lifestyle offerings with deliberate investments in quality and unique details igniting brand resurgence and design credibility.

The company’s integrated marketing strategy comprises disruptive and innovative campaigns, which elevate the brand to a modern luxury positioning, fueling elevated emotional and inspirational relevance.

The new and improved store design is a crucial transformational element for the company, with the 40 percent rollout of the modern luxury concept expected by end-FY16. Coach also intends to close its underperforming stores in North America, while elevating the positioning of 12 of its key North American markets, with an emphasis on its flagships.

Shares of Coach, Inc. rose by 4.52% in the past week and 1.39% for the last 4 weeks. In the past week, the shares have outperformed the S&P 500 by 1.21% and the outperformance increases to 0.71% for the last 4 weeks.

The 52-week high of the share price is $43.87 and the 52-week low is $27.2199.

The 50-day moving average is $30.61 and the 200 day moving average is recorded at $32.37. The company has a market cap of $8,478 million.

There were some positive developments noted from the most recent earnings report, with the pace of falling sales decelerating from prior quarters, particularly North American comparable-store sales, which, for the first time in a long time, did not fall by double-digit percentages.

Other positive areas supporting Coaches upward trend are:-

• Brand transformation initiatives are expected to push comps growth into positive territory by 3QFY16.

• Coach’s top-line performance in Asia Pacific region will continue to post modest increases.

• Limited promotional activity and careful inventory management will enable Coach to capture full-pricing and protect margins.

• Analysts upgrades.

In regards to capital structure, the company has only 7.94% debt based on Market Value. When funneled through the discounted cash flow (DCF) valuation method, assuming terminal free cash flow to firm (FCFF) growth of 1%, the enterprise value turns out to be $12.6 billion. Taking into account long-term debt of $890.4 million, the equity value turns out to be $11.72 billion. Assuming 276.6 million outstanding shares, the intrinsic value of stock is estimated to be $42.

18 analysts have set the short term price target of Coach, Inc. at $37.61, and may be as high as $50.00.

Plain Vanilla Research upgraded Coach Inc to a Buy rating with a price target of $42, representing an upside potential of 40% on November 16th.

The revision in rating is followed by better than expected comparable sales (comps) growth posted for the first quarter of FY 16 suggesting that the company's brand transformation efforts are finally paying off. The bullish stance is backed by expectation of positive comps growth in 3QFY16, accompanied with modest topline growth in Asia Pacific region and stabilized margins attributed to restrictive promotional activity.

Harvey’s Options Volatility Indicator


Of course, the first fiscal quarter is one of its strongest of the year, behind only the second quarter, which benefits from the Christmas holiday. And as Coach seems to have found a bottom, expect plenty of upward movement.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

**OPTION TRADE: Buy the COH Jan 2016 32.000 call (COH160115C00032000) at approximately $1.10. Place a pre-determined sell at $2.20.

Note: No protective stop losses added -- but if you wish to do so make it $0.45.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.

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