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Coach shares rise as analysts say stock good buy

Shares of Coach Inc. rose on Tuesday, as analysts said the luxury handbag maker's business model is solid, particularly long term.
/ Source: The Associated Press

Shares of Coach Inc. rose on Tuesday, as analysts said the luxury handbag maker's business model is solid, particularly long term.

Coach saw its share price tumble since the beginning of the year — down 33 percent — particularly after the company said in January that fiscal second-quarter profit fell 14 percent and revenue edged down 2 percent. The company said it would cut prices by 10 percent to 15 percent in 2009.

But analysts said Tuesday that the company had competitive advantages amid the difficult economic climate.

Shares rose 85 cents, or 6.1 percent, to close at $14.82. The stock has traded between $13.19 and $37.64 during the past 52 weeks.

"We believe the company's worldwide retail and wholesale expansion opportunities are substantial," said Cowen & Co. analyst Laura Champine. "Although we are modeling for limited square footage growth, we believe a better environment would drive double-digit top and bottom-line growth."

She resumed coverage of the New York company with an "Outperform" rating on the stock. Cowen & Co. stopped coverage on Coach in January 2008.

Despite weak sales, Coach's business model has "phenomenal profitability," Champine wrote. "Although recent pricing strategies will likely weigh on the top-line, we believe that gross margin can remain above 70 percent through fiscal 2010."

Meanwhile, Lazard Capital Markets analyst Todd Slater said that following a meeting with Coach management he is "encouraged" by the company's ability to introduce new products, reduce expenses and revamp its pricing structure to focus on under $300 products.

He reiterated his "Buy" rating on the stock and called it a "winner in a winning category."