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 –, 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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