MOST NOTEWORTHY: Smith International, Cerner and Coach were today's noteworthy upgrades:
JP Morgan upgraded Smith International (NYSE: SII) to Overweight from Neutral citing better risk/reward vs. group, and upside to estimates from Latin America drilling and its deepwater rig fleet. Note that Oppenheimer downgraded shares of SII based on valuation.
Jefferies believes Cerner Corp. (NASDAQ: CERN) in-line results and solid domestic bookings could alleviate the pressure on shares. Shares were raised to Buy from Hold.
Shares of Coach Inc. (NYSE: COH) were raised to Buy from Hold at Citigroup, citing sales stabilization and compelling valuation.
OTHER UPGRADES:
Medco Health (NYSE: MHS) was upgraded at Oppenheimer to Outperform from Perform.
ThinkPanmure raised VMware Inc. (NYSE: VMW) to Buy from Accumulate.
SunTrust Banks (NYSE: STI) was upgraded to Market Perform from Underperform at Keefe Bruyette.
First, the obvious -- there are too many Coach bags and bags of its ilk, and there isn't enough steel. Second, Coach couldn't pass on a price increase to save its life. Every price increase sticks for US Steel.
Third, on the Coach call where does Lew Frankfort -- who is great! -- want to expand? The U.S. Ouch! Worst market in the world. Saturated. No growth. Feeling poor.
Where does US Steel want to expand? Doesn't matter. The demand is so great it's really an issue of shipping, as CSX's (NYSE: CSX) (Cramer's Take) Michael Ward would tell you -- at least he told me last night on "Mad Money."
Coach Inc. (NYSE: COH) shares are rising today after the company reported fiscal second-quarter earnings of $252.3 million, or 69 cents per share, above analysts' estimates of 68 cents per share. The company said earnings were helped by an 18% rise in direct-to-consumer sales, as well as a 17.7% rise in factory same-store sales. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on COH.
After hitting a one-year high of $54.00 in April, the stock hit a one-year low of $24.09 earlier this month. COH opened this morning at $27.37. So far today the stock has hit a low of $25.76 and a high of $30.00. As of 10:35, COH is trading at $29.36, up $1.87 (6.8%). The chart for COH looks bearish but improving, while S&P gives the stock a very positive 5 STARS (out of 5) strong buy rating.
With luxury stocks off to a horrific start to the year -- Coach (NYSE: COH) and Tiffany (NYSE: TIF) already down in the neighborhood of 20% -- this might seem like a strange time for Prada, one of the world's top high-end fashion houses to take itself public.
But according to the Wall Street Journal, Prada's IPO is still scheduled [subscription required] for June. Miuccia Prada and her husband, Prada CEO Patrizio Bertelli, own 95% of the company, and had previously said that market conditions would be a factor in the timing of the IPO.
Assuming that Prada's IPO plans are indeed unfazed by the luxury market bloodshed, there are two possible scenarios:
Prada plans to go ahead with a June IPO because it believes the market will be kinder to luxury goods stocks by then, which would be bullish for the industry now.
Prada plans to do the IPO in June because raising money after that will only be more difficult.
Remember -- the insiders at Prada have a better read on this market than just about anyone, and the IPO schedule/details are an important barometer of the industry's health.
Back in June, the Disciplined Investor was poking fun at the prodigious rate at which Crocs (NASADQ: CROX) insiders were dumping stock as the media hyped the company's prospects. In a satirical letter to the company's shareholders on behalf of the CEO, Andrew Horowitz wrote: As for me, I still support the stock. I see no reason why it cannot double from here. I am feeling generous and want to give back to those who have helped me....With all of the supporters and bulls looking for shares to go to $150, I want to make sure there are plenty of shares available for those who have not yet been able to capitalize. So selling a large portion of my shares is merely an altruistic move to allow these that do not have shares the ability to now have access at these inflated prices. Why should I be so greedy? Since I have sold about 600,000 shares and now have a smaller position (234,243 shares held directly) I fell much better that I have allowed others to enter the "Crox Club". Now there are 600,000 more shares available for others to buy. I really feel good about this.
Now we're in November. Shares of Crocs have taken a hit, losing nearly half their value since the beginning of the month. And predatory securities lawyers have rushed to the scene, filing class-action lawsuits against the company, filled with vague allegations of securities fraud. Given that nearly every company that has the nerve to report a bad quarter gets sued these days, I'm not inclined to read much into the lawsuits.
The conventional wisdom is that luxury couturiers tend not to be impacted much by broader economic woes. The high-end consumer they cater to isn't likely to be impacted to the point that they cut back on their Coach, Inc. (NYSE: COH) and Louis Vuitton.
But that not be so true anymore. As luxury goods have found a wider audience, the financial status of their average consumer has declined. Now a lot of people are buying this stuff who can just barely afford it, or can't afford it. If you called Suze Orman on her "Can I afford it?" segment and asked if you could put a Coach bag on your credit card, she'd probably use her magical powers to have you struck by lightning. Unfortunately, it seems that many people are buying luxury goods this way. MarketWatchreports that "After three consecutive years of double-digit percentage growth, retailers that cater to those shoppers are suddenly dealing with leaner forecasts. Now their sales are on track to rise only 4% to 7% this coming holiday season, according to the Luxury Institute, a New York-based research group."
This is great news. You have to be a complete moron to be buying Coach bags if you earn $60 thousand a year, the average household income of the lowest quarter of the company's shoppers. Apparently people were getting high off of soaring home prices and, now that they're declining, they're realizing that the party is over.
The shift in recent years toward a larger group of less affluent shoppers buying luxury items changes the profile of these stocks. They're no longer something you can count on to stay strong in the face of broader economic weakness.
TheStreet.com's Jim Cramer says it's just hard to see how these firms can blame the consumer for their woes.
Do people really stop spending on cable when they feel less rich? Even as oil prices -- at the pump -- are much lower than they had been? Even if they are not trying to sell their home?
Do people stop spending on expensive handbags? Is that what they do when they can't sell their home?
I have been pondering over and over the Comcast (NASDAQ: CMCSA) (Cramer's Take) and Coach (NYSE: COH) (Cramer's Take) stories because those are the ones that broke out of the din of upside last week when they said things had broken down and they blamed the economy.
I thought that because in some ways Comcast and Coach have begun to have some competition that may better explain the weakness than the economy does. Comcast is up against a bunch of competing plans that I think require spending to stop or blunt, especially the Dish, which I love, and the Fios entry, which my sister loves.
Coach Inc. (NYSE: COH) is plunging this morning following the company's earnings conference call. COH earned 41 cents per share for the quarter, beating analyst expectations by a penny, but the company gave a lower-than-expected outlook after saying that traffic in its U.S. retail stores is declining. COH also issued a "conservative" outlook for holiday sales. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on COH.
After hitting a one-year high of $54.00 in April, the stock has been sliding over the past six months. This morning, COH opened at $38.00. So far today the stock has hit a low of $36.20 and a high of $38.94. As of 10:45, COH is trading at $37.22, down $4.25 (-10.3%). The chart for COH looks bearish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.
The Wall Street Journal's "Numbers Guy" takes a look at the issue of counterfeiting of luxury goods, a major thorn in the side of such couturiers as Coach (NYSE: COH) and Gucci. According to The Numbers Guy, "Washington business groups such as the U.S. Chamber of Commerce and the International Anticounterfeiting Coalition calculate that global counterfeit sales equal $600 billion to $650 billion a year -- numbers parroted in news releases by companies claiming to fight piracy. They build on the often-cited claim that counterfeit goods represent 5% to 7% of all world trade."
The problems with this statistic are twofold: First, it's hard to get accurate data on the operations of organized crime. Secondly, even if we do know how many knock-offs are being sold, it's hard to say how much of that is actually detracting from the sales of the high-fashion labels: Is someone who buys a $10 pair of "Gucci" sunglasses from a street vendor really buying those instead of $300 Gucci sunglasses? Or is that sale instead coming at the expense of less expensive retailers like PacSun (NASDAQ: PSUN) or even Wal-Mart (NYSE: WMT)?
It's unclear how much illegal knock-offs are really hurting designers, but there's another issue that definitely is hurting them and, for now at least, it's legal: lower-budget knock-offs, perfectly legal because there's no logo, of runway couture, often before it even hits stores.
An Associated Press piece looks at the balance fashion houses must strike in the pursuit of increasing sales: How to expand that target market without diluting the brand? It's a lot the challenges musicians face as they attempt to crossover without alienating their core fan base. Some succeed big time -- like Carlos Santana, Pavarotti, and Allison Krauss. Others fail in their crossover attempts and then find that their original fans aren't so quick to welcome them back.
Some industry observers are concerned that top designers have become all-too ubiquitous, licensing their names to cologne and other products outside of the company's traditional scope. And so they're losing their cache.
Is this a concern for shareholders of luxury couturiers like Coach (NYSE: COH)? With newer brands like True Religion (NASDAQ: TRLG) aggressively pursuing licensing deals, should we worry that the company will lose its reputation at a top maker of luxury denim, and better known for licensing its name to any tchotchke it can get a fee for?
When evaluating luxury apparel companies, take a very careful look at the company's efforts to protect its brands. Wall Street's push for quarterly revenue/earnings growth can make just about any new product look tempting to a management team motivated by stock options. But in the long-run, shareholders can only be rewarded if the brand image is managed effectively.
Launched on July 30th, Claymore/Robb Report Global Luxury (NYSE: ROB) is an exchange-traded fund that, according to Paul Trach, targets the upper crust of the consumer discretionary sector.
The editor of The ETF Authority notes that the fund is designed to track the performance of the world's premium luxury companies, with a portfolio that looks like a who's who of luxury brands.
The specialty index tracked by the fund, he notes, was constructed by Robb Media, which manages a number of publications aimed at the ultra-affluent. Tracy says, "Robb has its finger on the pulse of the world's wealthiest individuals."
And with stakes in countries like France, Switzerland, Italy, and Germany and holdings in such companies as Hermes, Porsche, and Harry Winston, he notes, "ROB offers global exposure to some of the world's most iconic companies."
Here are some highlights from this past week's earnings coverage from BloggingStocks: .gif){kind=logo}
With luxury stocks off to a horrific start to the year -- 
The conventional wisdom is that luxury couturiers tend not to be impacted much by broader economic woes. The high-end consumer they cater to isn't likely to be impacted to the point that they cut back on their 
Launched on July 30th, 
Stocks have their worst week in six years
Why haven't the Republicans said much about the economy?
Chasing Value: Are you watching WaMu?
