Signet Jewelers (SIG) Removed from Wells Fargo Priority Stock List, Keeps 'Outperform' Rating
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Wells Fargo analyst Ike Boruchow lowered estimates and removed Signet Jewelers (NYSE: SIG) from its Priority Stock List but maintained an Outperform rating and $100-$105 valuation range. While not out of the woods just yet, risk/reward has improved the analyst said.
Boruchow commented, ". We are lowering estimates and removing SIG from the Priority Stock List (PSL), as 1) our Q3 store work points to ongoing choppiness in traffic and elevated levels of promotion (particularly at the Kay banner), and 2) SIG is a rare retailer with "tougher" Q4 compares looming; however guidance calls for an acceleration in trends (which makes for a tough setup given the current lack of visibility in the business). We are lowering our Q4 comp (to -2.8% from -1.4%) and EPS to $3.82 (from $4.09 - guidance stands at $3.99-$4.21). Also, more recently, we feel that a lesser-known competitive threat has emerged in the form of the U.S. department store channel--as mid-tier players (M, JCP, KSS) spent 2015 focusing on improving their fine jewelry departments, which has translated to strong performances in the category all throughout this year (potentially at the expense of the specialty channel, where SIG dominates). Thus, it actually appears that the broadlines players are taking share (note that overall category growth is outpacing specialty-store growth), presenting a headwind that SIG must now work through (on top of the cyclical category pressure). Despite the current headwinds to the business (which will likely take a few quarters to sort out), we still believe the company is well-positioned in the industry over the longer-term. Specifically, we are confident in SIG's ability to continue taking share from struggling mom-and-pop businesses, as a result of numerous competitive advantages (national advertising, branded/exclusive merchandise, in-house financing). Thus, with shares trading at just 11-12x our now lowered out-year estimates, we believe risk/reward remains favorable. We maintain our Outperform rating, but lower FY17/FY18 EPS estimates to $7.08/$7.94 (from $7.25/$8.20) with valuation range maintained at $100-$105."
Shares of Signet Jewelers closed at $92.12 yesterday.
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Create E-mail Alert Related CategoriesAnalyst Comments, Analyst EPS Change
Related EntitiesWells Fargo, Ike Boruchow
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