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Citi Says Coach Brand Still Relevant, Upgrades to 'Buy'

Coach Store

 (Reuters)

Citigroup (C) upgraded Coach (COH) to “buy” from “neutral” on Wednesday, saying the luxury brand still remains relevant and expressing the likelihood the designer’s transition to a multi-category lifestyle brand will pay off. 

Shares of the New York-based handbag retailer ticked up about 2.5% premarket to $50.

“We’re upbeat on upside because we believe the Coach brand remains relevant, COH’s plan to transition to a multi-category lifestyle brand will ultimately work, & free cash flow, absolute ROIC, net cash, return of funds, & COH’s mgmt team remains top notch,” Citi analyst Oliver Chen wrote in a note.

Coach, he added, has transitioned from a growth stock to value and the upgrade reflects good upside potential and the fact that the stock price already absorbed potential risks.

However, Citi narrowed its outlook on Coach’s same-store sales, a key growth metric that measures sales at stores open longer than a year. It now expects same-store sales to fall 2%, with lower sales possible given the “intensification of competition” and high Coach Legacy prices.

Citi maintained its price target of $56, but lowered its fiscal 2013 EPS view to $3.65, which is below the consensus view of $3.70 a share.

Follow Jennifer Booton on Twitter at @Jbooton