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Brand Face-Off: Michael Kors Holdings Ltd (KORS) vs. Coach, Inc. (COH)

Evaluating KORS and COH from technical and sentiment viewpoints

by 10/21/2013 2:19:46 PM
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On paper, Michael Kors Holdings Ltd (NYSE:KORS) and Coach, Inc. (NYSE:COH) appear to be much the same. Both are high-end retailers that offer designer-brand products to similar clientele bases. However, comparing each company on the technical front will prove them to be near polar opposites as of late -- particularly since their most recent quarterly earnings reports on Aug. 6 and July 30, respectively. With both KORS and COH now preparing for the next round of earnings releases, let's discuss the stocks' performances on the charts, and the surrounding sentiment that may impact future price action, from a contrarian point of view.

Since the start of 2013, KORS has outperformed COH by almost 53 percentage points, as the former has tacked on an impressive 49.9% to perch at $76.50, while the latter has shaved off 2.9% to trade at $53.95. More recently, KORS scored an earnings-induced pop of 6.1% in the week after its fiscal first-quarter report in early August, when the company bested analysts' consensus profit projection by a whopping 24.5%. As such, the stock boasts a three-month gain of 23%. Meanwhile, COH plunged 8.5% just one hour into the session following its July 30 earnings report, and has since failed to fill this bearish gap. In fact, during the past 60 sessions, the stock has underperformed the broader S&P 500 Index (SPX) by 11.7 percentage points.

Daily Chart of KORS since July 2013

Daily Chart of COH since July 2013

Although KORS and COH have fared differently on the charts, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have treated them one and the same during the past two weeks, and have bought to open more puts than calls on both stocks within that time frame. At these exchanges, KORS sports a 10-day put/call volume ratio of 1.23, which ranks just 10 percentage points shy from a 12-month high, while COH's corresponding 10-day put/call volume ratio comes in at 2.35, ranking in the 81st percentile of its annual range. In other words, both equities' puts are being picked up over calls at a much faster rate than usual.

Given KORS outstanding technical backdrop, such a heavy accumulation of put open interest may end up giving the stock an extra boost in the near term. In particular, KORS could see options-related support at out-of-the-money put strikes, as these bearish bets unwind ahead of expiration.

Of note, both securities have a Schaeffer's Volatility Index (SVI) of 43%. However, KORS' ranks lower than 77% of other such readings taken over the past year, while COH's sits in the 73rd percentile of its annual range. In other words, the former's short-term options are cheaper than usual right now, while the latter's are on the expensive side, relatively speaking.

Outside the options pits, both KORS and COH saw an increase in short interest during the last two reporting periods -- 14.3% and 15.3%, respectively. Now KORS' short interest accounts for 4% of its available float, while COH's represents more than seven sessions' worth of pent-up buying demand. Should KORS see any earnings-induced upside, following its Nov. 5 report, the stock could end up benefiting from a short-squeeze scenario.

Finally, a good portion of the brokerage bunch deems both equities worthy of a "buy" or better endorsement. Specifically, KORS has received 13 "buy" or "strong buy" ratings, compared to three "hold" or worse suggestions. Likewise, COH sports 12 "buy" or better recommendations, versus 13 "holds" and not a single "sell." What's more, KORS' and COH's respective average 12-month price targets of $82.83 and $60.64 represent expected upside to their current price levels. For COH -- given its recent downward trajectory -- this means a potential round of price-target cuts may be in store, which could push the stock further south.

In summary, Michael Kors Holdings Ltd (NYSE:KORS) and Coach, Inc. (NYSE:COH) have taken different routes on the charts, but sentiment on Wall Street is similar toward the stocks. Looking forward, KORS is slated to enter the earnings confessional on Tuesday, Nov. 5, and analysts, on average, are calling for a per-share profit of 67 cents -- which is a 36.7% increase from the year prior. Plus, COH reports ahead of tomorrow's opening bell, and analysts project a profit of 76 cents per share, which is just one penny shy of last year's results. What is important to note here is that the companies' earnings announcements could significantly impact the underlying stocks' price action -- as it has done in the past -- and send the stocks further on their respective ways.

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