Why Coach, Inc. Might Keep Plunging

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Coach (NYSE:TPR) slipped about 1% this morning after Cantor Fitzgerald downgraded the luxury handbag and apparel company from buy to hold.

So what: Along with the downgrade, analyst Allegra Perry lowered her price target to $50 (from $61), pretty much in line with yesterday's close. While contrarians might be attracted to Coach's earnings-related plunge earlier this week, Perry believes the upside remains limited given the continuing trend of declining traffic.

Now what: Cantor doesn't expect growth to return to Coach's North American operations anytime soon. "[W]hile conversion rates increased again, traffic fell further, suggesting a step-up in marketing and communications efforts may be needed to encourage a return of customers; this will maintain pressure on margins in our view," Perry noted. "The stock remains well-supported by the highest free cash flow yield in our coverage universe (c.6%) and one of the highest dividend yields (c.2.7%), but in the absence of any near term, material improvement in momentum, we believe shares will struggle to see significant upside from current levels for now." Of course, for long-term investors with some patience, those cash flow multiples might be too juicy to pass up.