Signet Jewelers' Blemishes Lead To RBC Downgrade

Investors with confidence in Signet Jewelers Ltd. SIG's long-term story showed patience and risk tolerance — but now one Wall Street analyst is no longer comfortable with a bullish stance.

The Analyst

RBC Capital Markets' Brian Tunick downgraded Signet Jewelers' stock rating from Outperform to Sector Perform with a price target lowered from $60 to $55.

The Thesis

Signet's stock has seen notable selling pressure over the past two years, as many investors were left waiting for a comp recovery and the sale of its credit portfolio acted as a "more meaningful" catalyst, Tunick said in the downgrade note. (See the analyst's track record here.) 

These tailwinds have yet to play out, and the company's 2017 holiday sales performance confirms that "ongoing challenges" remain in place despite a solid macro and retail environment, the analyst said. Specifically, a negative 5.3-percent holiday comp is "disappointing," even if it's within management's guidance range, Tunick said. 

Looking forward, the analyst said he has "less confidence" that Signet can take market share in the jewelry space. The sale of the subprime book in the first half of 2018 will merely "add incremental noise," Tunick said. 

The analyst's new $55 price target is based on a 10x multiple on his fiscal 2019 earnings per share estimate.

Price Action

Shares of Signet Jewelers were trading higher by 3.13 percent at $56.93 Friday afternoon. 

Related Links:

Report: The Retailers Most Dependent On Holiday Sales

Analyst: Signet Jewelers Could Benefit From Low Expectations

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