Why Coach Inc. Shares Could Sink 25%

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Coach  slipped 1% in premarket trading Monday after Wedbush downgraded the luxury handbag specialist from neutral to underperform.

So what: Along with the downgrade, analyst Corinna Freedman lowered her price target to $26 (from $40), representing about 25% worth of downside to Friday's close. So while contrarian traders might be turned off by Coach's sharp pullback over the past year, Freedman's call could reflect a sense on Wall Street that the company's growth prospects are too limited to trigger a rebound.


Now what: According to Wedbush, Coach's risk/reward trade-off is rather unappealing at this point. "The guidance for FY15 was much worse than we anticipated and we lower our already below-consensus EPS estimate from $2.55 to $1.95," said Freedman. "We were also disappointed by a further lengthening of the turnaround timeline, as mgmt. does not expect a full recovery of OM until FY19, with OM partially recovering to just a +20-25% range by FY17." Given Wedbush's seemingly solid track record of stock-picking, Coach bulls might want to investigate those risks more closely. 

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The article Why Coach Inc. Shares Could Sink 25% originally appeared on Fool.com.

Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Coach. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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