Intrinsic value of Coach Inc. - COH

Previous Close

$39.90

  Intrinsic Value

$33.94

stock screener

  Rating & Target

hold

-15%

Previous close

$39.90

 
Intrinsic value

$33.94

 
Up/down potential

-15%

 
Rating

hold

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of COH stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 11.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -0.09
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  4,488
  4,578
  4,683
  4,803
  4,939
  5,088
  5,253
  5,431
  5,625
  5,834
  6,058
  6,297
  6,553
  6,825
  7,114
  7,421
  7,746
  8,090
  8,454
  8,839
  9,245
  9,674
  10,125
  10,602
  11,104
  11,632
  12,189
  12,775
  13,391
  14,040
  14,722
Variable operating expenses, $m
 
  3,913
  4,002
  4,104
  4,218
  4,344
  4,483
  4,634
  4,797
  4,973
  5,162
  5,316
  5,532
  5,762
  6,006
  6,265
  6,540
  6,830
  7,138
  7,463
  7,805
  8,167
  8,549
  8,951
  9,375
  9,821
  10,291
  10,786
  11,306
  11,854
  12,429
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  3,701
  3,913
  4,002
  4,104
  4,218
  4,344
  4,483
  4,634
  4,797
  4,973
  5,162
  5,316
  5,532
  5,762
  6,006
  6,265
  6,540
  6,830
  7,138
  7,463
  7,805
  8,167
  8,549
  8,951
  9,375
  9,821
  10,291
  10,786
  11,306
  11,854
  12,429
Operating income, $m
  787
  665
  681
  700
  721
  744
  770
  798
  828
  860
  895
  981
  1,020
  1,063
  1,108
  1,156
  1,206
  1,260
  1,316
  1,376
  1,440
  1,506
  1,577
  1,651
  1,729
  1,811
  1,898
  1,989
  2,085
  2,186
  2,292
EBITDA, $m
  1,000
  865
  885
  908
  933
  961
  993
  1,026
  1,063
  1,102
  1,145
  1,190
  1,238
  1,290
  1,344
  1,402
  1,464
  1,529
  1,598
  1,670
  1,747
  1,828
  1,913
  2,003
  2,098
  2,198
  2,303
  2,414
  2,530
  2,653
  2,782
Interest expense (income), $m
  35
  55
  45
  47
  49
  52
  54
  58
  61
  65
  69
  73
  78
  83
  88
  93
  99
  106
  112
  119
  127
  135
  143
  152
  161
  170
  181
  191
  203
  215
  227
Earnings before tax, $m
  759
  609
  637
  653
  672
  693
  715
  740
  767
  796
  826
  907
  943
  980
  1,020
  1,062
  1,107
  1,154
  1,204
  1,257
  1,313
  1,372
  1,434
  1,499
  1,568
  1,641
  1,717
  1,798
  1,883
  1,972
  2,065
Tax expense, $m
  168
  165
  172
  176
  181
  187
  193
  200
  207
  215
  223
  245
  255
  265
  275
  287
  299
  312
  325
  339
  354
  370
  387
  405
  423
  443
  464
  485
  508
  532
  558
Net income, $m
  591
  445
  465
  477
  491
  506
  522
  540
  560
  581
  603
  662
  688
  715
  745
  775
  808
  843
  879
  918
  958
  1,001
  1,047
  1,095
  1,145
  1,198
  1,254
  1,312
  1,374
  1,439
  1,508

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3,084
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  5,832
  2,803
  2,868
  2,941
  3,024
  3,116
  3,216
  3,326
  3,445
  3,572
  3,709
  3,856
  4,013
  4,179
  4,356
  4,544
  4,743
  4,954
  5,177
  5,413
  5,661
  5,924
  6,201
  6,492
  6,800
  7,123
  7,464
  7,823
  8,200
  8,598
  9,015
Adjusted assets (=assets-cash), $m
  2,748
  2,803
  2,868
  2,941
  3,024
  3,116
  3,216
  3,326
  3,445
  3,572
  3,709
  3,856
  4,013
  4,179
  4,356
  4,544
  4,743
  4,954
  5,177
  5,413
  5,661
  5,924
  6,201
  6,492
  6,800
  7,123
  7,464
  7,823
  8,200
  8,598
  9,015
Revenue / Adjusted assets
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
  1.633
Average production assets, $m
  1,150
  1,172
  1,199
  1,230
  1,264
  1,303
  1,345
  1,390
  1,440
  1,493
  1,551
  1,612
  1,677
  1,747
  1,821
  1,900
  1,983
  2,071
  2,164
  2,263
  2,367
  2,476
  2,592
  2,714
  2,843
  2,978
  3,120
  3,270
  3,428
  3,594
  3,769
Working capital, $m
  3,199
  119
  122
  125
  128
  132
  137
  141
  146
  152
  157
  164
  170
  177
  185
  193
  201
  210
  220
  230
  240
  252
  263
  276
  289
  302
  317
  332
  348
  365
  383
Total debt, $m
  1,580
  1,273
  1,331
  1,397
  1,472
  1,554
  1,645
  1,743
  1,850
  1,965
  2,089
  2,221
  2,361
  2,511
  2,671
  2,840
  3,019
  3,209
  3,409
  3,621
  3,845
  4,081
  4,330
  4,593
  4,870
  5,161
  5,468
  5,791
  6,130
  6,488
  6,864
Total liabilities, $m
  2,830
  2,523
  2,581
  2,647
  2,722
  2,804
  2,895
  2,993
  3,100
  3,215
  3,339
  3,471
  3,611
  3,761
  3,921
  4,090
  4,269
  4,459
  4,659
  4,871
  5,095
  5,331
  5,580
  5,843
  6,120
  6,411
  6,718
  7,041
  7,380
  7,738
  8,114
Total equity, $m
  3,002
  280
  287
  294
  302
  312
  322
  333
  344
  357
  371
  386
  401
  418
  436
  454
  474
  495
  518
  541
  566
  592
  620
  649
  680
  712
  746
  782
  820
  860
  902
Total liabilities and equity, $m
  5,832
  2,803
  2,868
  2,941
  3,024
  3,116
  3,217
  3,326
  3,444
  3,572
  3,710
  3,857
  4,012
  4,179
  4,357
  4,544
  4,743
  4,954
  5,177
  5,412
  5,661
  5,923
  6,200
  6,492
  6,800
  7,123
  7,464
  7,823
  8,200
  8,598
  9,016
Debt-to-equity ratio
  0.526
  4.540
  4.640
  4.750
  4.870
  4.990
  5.110
  5.240
  5.370
  5.500
  5.630
  5.760
  5.880
  6.010
  6.130
  6.250
  6.360
  6.480
  6.590
  6.690
  6.790
  6.890
  6.980
  7.070
  7.160
  7.250
  7.330
  7.400
  7.480
  7.550
  7.610
Adjusted equity ratio
  -0.030
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  591
  445
  465
  477
  491
  506
  522
  540
  560
  581
  603
  662
  688
  715
  745
  775
  808
  843
  879
  918
  958
  1,001
  1,047
  1,095
  1,145
  1,198
  1,254
  1,312
  1,374
  1,439
  1,508
Depreciation, amort., depletion, $m
  213
  200
  204
  208
  212
  217
  223
  229
  235
  242
  249
  209
  218
  227
  237
  247
  258
  269
  281
  294
  307
  322
  337
  352
  369
  387
  405
  425
  445
  467
  489
Funds from operations, $m
  757
  645
  668
  685
  703
  723
  745
  769
  795
  823
  853
  872
  906
  942
  981
  1,022
  1,065
  1,111
  1,160
  1,212
  1,266
  1,323
  1,383
  1,447
  1,514
  1,585
  1,659
  1,737
  1,819
  1,906
  1,997
Change in working capital, $m
  -97
  2
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
Cash from operations, $m
  854
  643
  666
  682
  699
  719
  741
  764
  790
  817
  847
  866
  899
  935
  973
  1,014
  1,057
  1,103
  1,151
  1,202
  1,255
  1,312
  1,372
  1,435
  1,501
  1,571
  1,644
  1,722
  1,803
  1,889
  1,979
Maintenance CAPEX, $m
  0
  -149
  -152
  -156
  -160
  -164
  -169
  -175
  -181
  -187
  -194
  -201
  -209
  -218
  -227
  -237
  -247
  -258
  -269
  -281
  -294
  -307
  -322
  -337
  -352
  -369
  -387
  -405
  -425
  -445
  -467
New CAPEX, $m
  -283
  -22
  -27
  -31
  -35
  -38
  -42
  -46
  -50
  -53
  -57
  -61
  -65
  -70
  -74
  -79
  -83
  -88
  -93
  -98
  -104
  -110
  -116
  -122
  -128
  -135
  -142
  -150
  -158
  -166
  -175
Cash from investing activities, $m
  593
  -171
  -179
  -187
  -195
  -202
  -211
  -221
  -231
  -240
  -251
  -262
  -274
  -288
  -301
  -316
  -330
  -346
  -362
  -379
  -398
  -417
  -438
  -459
  -480
  -504
  -529
  -555
  -583
  -611
  -642
Free cash flow, $m
  1,447
  471
  487
  495
  505
  517
  529
  544
  560
  577
  596
  603
  625
  648
  673
  699
  727
  757
  788
  822
  857
  895
  934
  976
  1,020
  1,066
  1,115
  1,167
  1,221
  1,278
  1,338
Issuance/(repayment) of debt, $m
  712
  -307
  58
  66
  74
  83
  91
  99
  107
  115
  123
  132
  141
  150
  159
  169
  179
  190
  201
  212
  224
  236
  249
  263
  277
  291
  307
  323
  340
  357
  376
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  748
  -307
  58
  66
  74
  83
  91
  99
  107
  115
  123
  132
  141
  150
  159
  169
  179
  190
  201
  212
  224
  236
  249
  263
  277
  291
  307
  323
  340
  357
  376
Total cash flow (excl. dividends), $m
  2,192
  164
  545
  561
  580
  599
  620
  642
  666
  692
  719
  735
  765
  798
  832
  868
  906
  947
  989
  1,034
  1,081
  1,131
  1,183
  1,239
  1,297
  1,358
  1,422
  1,490
  1,561
  1,635
  1,714
Retained Cash Flow (-), $m
  -319
  -362
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
Prev. year cash balance distribution, $m
 
  3,084
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  2,886
  538
  554
  571
  590
  610
  632
  655
  679
  705
  720
  750
  781
  814
  849
  886
  926
  967
  1,010
  1,056
  1,105
  1,156
  1,209
  1,266
  1,325
  1,388
  1,454
  1,523
  1,596
  1,672
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  2,767
  493
  482
  470
  457
  443
  427
  409
  390
  370
  342
  320
  297
  273
  249
  225
  201
  178
  156
  134
  114
  96
  79
  64
  52
  40
  31
  24
  17
  13
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Coach, Inc. (Coach) is a design house of luxury accessories and lifestyle collections. The Company's product offering uses a range of leathers, fabrics and materials. Its segments include North America, International and Stuart Weitzman. The North America segment includes sales of Coach brand products to North American customers through Coach-operated stores (including the Internet) and sales to North American wholesale customers. The International segment operates department store concession shop-in-shop locations and retail and outlet stores, as well as e-commerce Websites. The Stuart Weitzman segment includes sales across the world generated by the Stuart Weitzman brand, primarily through department stores in North America and international locations, and within Stuart Weitzman operated stores (including the Internet) in the United States, Canada and Europe. Its product offerings include women's and men's bags, ready-to-wear, including outerwear, watches, fragrance and jewelry.

FINANCIAL RATIOS  of  Coach Inc. (COH)

Valuation Ratios
P/E Ratio 19
Price to Sales 2.5
Price to Book 3.7
Price to Tangible Book
Price to Cash Flow 13.2
Price to Free Cash Flow 19.7
Growth Rates
Sales Growth Rate -0.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -30.1%
Cap. Spend. - 3 Yr. Gr. Rate 5.2%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 52.6%
Total Debt to Equity 52.6%
Interest Coverage 23
Management Effectiveness
Return On Assets 11.5%
Ret/ On Assets - 3 Yr. Avg. 10.5%
Return On Total Capital 14.5%
Ret/ On T. Cap. - 3 Yr. Avg. 13.8%
Return On Equity 20.8%
Return On Equity - 3 Yr. Avg. 18.3%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 68.7%
Gross Margin - 3 Yr. Avg. 68.8%
EBITDA Margin 22.4%
EBITDA Margin - 3 Yr. Avg. 20.4%
Operating Margin 17.5%
Oper. Margin - 3 Yr. Avg. 15.6%
Pre-Tax Margin 16.9%
Pre-Tax Margin - 3 Yr. Avg. 15.2%
Net Profit Margin 13.2%
Net Profit Margin - 3 Yr. Avg. 11%
Effective Tax Rate 22.1%
Eff/ Tax Rate - 3 Yr. Avg. 27.6%
Payout Ratio 64%

COH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the COH stock intrinsic value calculation we used $4488 million for the last fiscal year's total revenue generated by Coach Inc.. The default revenue input number comes from 2017 income statement of Coach Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our COH stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for COH is calculated based on our internal credit rating of Coach Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Coach Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of COH stock the variable cost ratio is equal to 85.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for COH stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Coach Inc..

Corporate tax rate of 27% is the nominal tax rate for Coach Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the COH stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for COH are equal to 25.6%.

Life of production assets of 7.7 years is the average useful life of capital assets used in Coach Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for COH is equal to 2.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $3002 million for Coach Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 284.015 million for Coach Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Coach Inc. at the current share price and the inputted number of shares is $11.3 billion.

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Financial statements of COH
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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