Coach Needs Time To 'Digest' Kate Spade, Stock Could Take Time To Adjust

Analysts at Piper Jaffray feel now is the time for Coach Inc COH's investors to move to the sidelines as the stock needs a "period of digestion."

The firm's Erinn Murphy downgraded Coach's stock from Overweight to Neutral with a price target lowered from $48 to $43.

Investors need to give Coach time for it to integrate the Kate Spade brand, which it acquired earlier this year, Murphy commented in a note. In fact, the company said it will be changing its comp reporting structure as part of being a "house of brands" company. Accordingly, it will likely take some time for the stock to see it's "drivers re-calibrate."

Investors and the Street have gotten used to Coach's reporting structure in which it would report NA global comp (including full price and outlet sales combined), the analyst said. The stock's success as of late has been trading positively on these comp-store numbers as it served as the best proxy to gauge the health of the Coach brand.

In other words, the fashion icon and retailer's results are likely to show a lower chance of comp and sales out performance moving forward as the P&L line will be more reliant on the Kate Spade EBIT synergies. Over the longer-term, the Kate Spade acquisition will likely generate synergies that will exceed management's $50 million target.

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Image Credit: By Leitonmahillo (Own work) [CC BY-SA 3.0], via Wikimedia Commons