Banc of America Securities-Merrill Lynch upgraded Coach Inc to buy from neutral, citing a successful start to the handbags and accessories maker's strategy of lowering price points.
Its (Coach's) Poppy collection and tweaks on existing products have moved half of the assortment to price points below $300. This has caused an inflection point in traffic and conversion that we expect will stabilize results in the near-term, analyst Lorraine Hutchinson said.
Coach's gross margin will benefit from leaner inventories and sharper price points, Hutchinson said, adding that the company has $800 million of cash on hand and using that cash for a share buyback would be 10 percent accretive to earnings.
Hutchinson, who views China as a great long-term growth opportunity, said the company is not cutting costs like its peers but instead investing in its business in China, which is favorable.
The analyst raised the price target on the company's stock to $36 from $28.
Shares of the company rose 4 percent to $29.35 in morning trade, on the New York Stock exchange. (Reporting by Viraj Nair in Bangalore; Editing by Pradeep Kurup)