Signet Jewelers (SIG): 2Q Disappointing But Strategic Investment Puts In A Floor - Nomura
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Nomura Securities analyst, Simeon Siegel, reiterated his Buy rating on shares of Signet Jewelers (NYSE: SIG) price target of $104. Yes 2Q was difficult but concurrent with the release, SIG announced Leonard Green’s investment of $625mn in the form of convertible preferred shares. The analyst believes this event will put a floor under the stock since it offers two benefits that should create a floor under the shares:
1) Since the conversion price will be priced at an 18% premium, SIG will be able to use the $625mn to buy back more shares at today’s price they will have to “add back” into their diluted EPS calc for the preferred shares. The $625mn should drive 7.4mn in repurchased shares, vs the 6.4mn of shares issued to LGP at their $98 conversion price, yielding an actual 1mn reduction in share count, which by our math would add $0.10 of EPS to FY18.
2) Although accounting rules will add back the 6.4mn of preferred shares to the diluted EPS calculation, the reality is these SIG shares are not outstanding (or in the market) until the conversion ends up taking place. Therefore, once SIG repurchases the 7.4mn shares with the $625mn, although the diluted share count will be adjusted for the pref shares, the actual shares that can be bought/shorted will have been reduced by ~10% as SIG removes them from the marketplace. With the short interest at 11% of outstanding shares, this could prove interesting.
Shares of Signet Jewelers closed at $80.65 yesterday.
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