Player Avatar NovaTodd (68.57) Submitted: 3/20/2013 5:48:58 PM : Outperform Start Price: $51.57 COH Score: -67.73

I bought yesterday at $48.00. I consider this a bargain for a company with such an outstanding track record of efficiency and profitability. ROIC has been consistently north of 40% over the past several years, and checked in at 56% last year; sales per square foot is close to $2,000 and ranks among the very best in the retail sector. Coach has a rock-solid balance sheet with a strong cash position and minimal long-term obligations; in fact, FCF generated last year alone adds up to about 80% of total liabilities on the balance sheet.

The valuation looks good right now: Price/Cash Flow is about 11.5, which is below the industry average of 16 and the company's own five year average of 15. The shares yield 2.4%, and the current dividend payout is only about 35% of free cash flow. Realistically, the shares could yield north of 4% in five years using the current price and applying a fairly conservative growth estimate to the dividend. The share count has also been in decline over the past few years.

I'm no fashion aficionado, but I think Coach has built a durable brand that will continue to command a premium price for the next several years.

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