Deutsche Bank: With Kate Spade Acquisition, Coach Is A Triple Threat

Coach Inc COH’s $2.4 billion purchase of Kate Spade & Co KATE is a marriage made in handbag heaven, according to Deutsche Bank.

Deutsche Bank upgraded Coach from Hold to Buy and raised its price target from $40 to $54 on Monday.

Operating a multi-brand portfolio similar to the European fashion conglomerates LVMH and Kering isn’t easy, Deutsche Bank research analyst Paul Trussell said in a note.

“Yet, given the success of COH’s turnaround thus far, we are confident management can execute.”

A Bullish Forecast

Deutsche Bank raised its comp forecast for Coach’s fourth quarter in North America from 3 percent to 4 percent in Monday’s note and raised its fourth-quarter EPS estimate from $0.48 to $0.49.

Deutsche’s 2018 forecast calls for comps of 2.5–3 percent.

“We are more confident that momentum can continue next year given the likely ongoing strength in [average unit revenue] as Coach continues to bring innovation to the handbag category and introduce higher price point bags,” Trussell said.

‘A Rare Margin Expansion Opportunity’

The Kate Spade acquisition will add to Coach’s value to the tune of $0.52 to the stock’s EPS in fiscal 2020, according to Deutsche Bank projections.

The Coach brand has “a rare margin expansion opportunity not just within Kate Spade, but across all three brands,” Trussell said.

Coach acquired the footwear brand Stuart Weitzman in 2015.

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