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Inside Wall Street


Coach's Winning Bag of Tricks

Coach (COH), one of the few luxury-goods companies that quickly revised its strategy last year to avoid getting knocked out by the recession, was in solid shape by the end of its fiscal year on Jun. 30. That has fired up its stock, which rocketed to 33.44 a share from 11.41 in early March. The company "reacted quickly and prudently" by cutting price levels without sacrificing product value and its 70%-72% gross margins, says Jennifer Milan of investment firm Sterne, Agee & Leach. A designer and maker of upscale products for women and men, Coach is a leader in handbags, which account for 62% of total sales. "Coach has significant growth opportunities," Milan notes, in both domestic and foreign markets, particularly in China. She rates Coach outperform with a 12-month target of 38.

Michelle Clark of Morgan Stanley (MS) (it did banking for Coach) rates the retailer overweight. She says the company's strategy of reducing the average handbag price from $325 each to $285 is working. She has upped her fiscal 2010 earnings forecast to $2.01 a share from $1.84, and her 2011 estimate to $2.28 from $1.98. Even with the stock's huge advance, Coach is still attractive because the current price "fails to account for normalized earnings above $2 a share and for operating margins above 31%," says Clark.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Walgreen: The Flu Season Factor

Some pros are snapping up shares of Walgreen (WAG) as a play on the flu season.

Shares of the largest U.S. retail drugstore chain in revenue terms have climbed to 39.12 from 21 a year ago, in part because of solid fiscal fourth-quarter (ended Aug. 31) results that beat the Street's estimates. That plus the flu season ahead should push up Walgreen's shares, says Robert Willoughby of Bank of America Merrill Lynch (BAC), who rates the 6,500-store chain a buy. "A more severe flu season implies some upside to our revenue and earnings forecasts," he says. Already demand this year for products such as flu shots and cold medicines is stronger than in 2008.

Derek Leckow of Barrington Research rates Walgreen outperform with a 12-month target of 60, based on his earnings estimate of $2.28 a share for fiscal 2010 and $2.88 for fiscal 2011.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Recruitment Riches for Taleo

You might expect the recession to clobber a company like Taleo (TLEO), which provides corporations with a software system to recruit, assess, and improve their workforce. But Taleo's stock has zoomed to 22.39 a share from 5.37 on Nov. 21, 2008, a 52-week low. Business at Taleo "remains robust," says Brad Reback of Oppenheimer, who rates the stock outperform. Taleo, he says, "can generate double-digit earnings and free cash flow growth over the next few years."

Taleo Chairman and CEO Michael Gregoire says that despite massive layoffs, corporate giants, including Citigroup (C), Intel (INTC), and JPMorgan Chase (JPM) (all Taleo clients), continue to fill key positions, and that's when they need Taleo's services.

Tom Ernst Jr. of Deutsche Bank (DB) sees Taleo earning 21 cents a share in 2010, vs. a loss in 2009. He rates Taleo a buy with a one-year target of 27.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Marcial writes the Inside Wall Street column for BusinessWeek. In 2008, FT Press published the book Gene Marcial's 7 Commandments of Stock Investing.


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