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Signet Jewelers Ltd. (SIG): A Diamond in the Rough or Overvalued Player?


Signet Jewelers Ltd. (NYSE:SIG) shares are on fire today, after the jewelry company reported second-quarter earnings results that blew away Wall Street estimates and announced a digital acquisition.

Specifically, the company posted net income of $1.33 per share on revenue of $1.40 billion, beating consensus estimates of $1.04 and $1.33 billion, respectively. In addition, same-store sales were up 1.4%, driven by e-commerce platform improvements, Mother’s Day performance and timing, effective marketing and bridal promotion initiatives. Looking ahead, Signet reiterated its fiscal 2018 guidance for a same-store sales decline by a low-to-mid-single digit percentage and EPS of $7.00 to $7.40.

Separate from the earnings release, Signet announced an agreement to acquire R2Net, which owns popular online jewelry retailer – JamesAllen.com, as well as Segoma Imaging Technologies that enhances digital shopping experiences.

In reaction, Wells Fargo analyst Ike Boruchow reiterates an Outperform rating on Signet shares, with a price target of $97, which implies an upside of 52% from current levels. (To watch Boruchow’s track record, click here)

Boruchow analyzed the company’s most important developments:

  1. SIG comped positively for the first time in 4 quarters (+1.4% vs. consensus -4%), which represented a stark improvement vs. Q1’s disappointing -11.5% comp (even after adjusting for the Mother’s Day shift, underlying comps improved by roughly 600bps).
  2. After missing bottom-line expectations consistently over the past 12-18 months, EPS of $1.33 beat consensus by roughly 30% (the Street was at $1.04).
  3. The company quantified the accretion from ”Phase 1” of their credit outsourcing initiative, noting almost $0.35 of accretion this year ex-transaction costs (pulled forward the share repurchases to Q2 and repurchased 12% of common shares outstanding).

Boruchow concluded, “All in, we believe we their new CEO Gina Drosos now in place, this was a very solid quarter from SIG (which demonstrates a stabilization of fundamentals), and we would expect shares to move meaningfully higher (with follow-through), as we’ve seen from other highly-shorted, low-sentiment retailers that beat numbers this EPS season (URBN, DSW, EXPR, KORS to name a few).”

Out of the 8 analysts polled in the past 3 months, 5 rate Signet Jewelers stock a Buy, while 3 rate the stock a Hold. With a return potential of 19%, the stock’s consensus target price stands at $73.86.

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