Wells Fargo analyst, Ike Boruchow, noted that in conjunction with Q1 results, Signet Jewelers (NYSE: SIG) management announced that they are now exploring strategic options for their credit book – an extremely intriguing announcement given the stock's ongoing underperformance continues to be tied to the risk around their credit operations.

Potential outcomes:

1) $1.5B in proceeds from a credit book sale (along with a go-forward profit sharing arrangement

2) $800-$850 million in lost revenues (and $225-$250 million in lost EBIT) due to the lost control of their credit operations (credit participation likely drops from 62% closer to 50%)

3) credit sale proceeds are used to buyback roughly 20% of the current float. In the end, we see such a transaction as being fairly EPS neutral (lost EBIT offset by repurchases), but valuation accretive (credit risk eliminated, stock re-rates to retail multiple).

While difficult to handicap the probability of such a transaction occurring, the fact that management announced the intention to pursue options is an encouraging sign, and they view this balance sheet optionality as highly compelling for an already strong business.

No change to Outperform rating but the firm tweaked their valuation range to $135-$140 (from $143-$145) based on a slightly more conservative P/E multiple (13-14x).

For an analyst ratings summary and ratings history on Signet Jewelers click here. For more ratings news on Signet Jewelers click here.

Shares of Signet Jewelers closed at $99.58 yesterday.