Turnaround Letter Buy-rated Signet Jewelers (SIG) pre-released strong fiscal 2020 holiday results, lifting its shares by over 40% yesterday.
The company reported that holiday same-store sales increased by 1.6%, with a strong +13.5% increase in eCommerce comp sales. Signet updated its fourth quarter comp sales guidance to an increase of 1.1% compared to estimates for a decline of about 2.5%. Signet also raised their 4Q operating income guidance to $254 million - $259 million, much higher than consensus estimates of $236 million.
A likely further boost to the shares was that over 31% of Signet shares were sold short (investors betting that the stock price would decline). These investors likely bought shares aggressively to close out their short positions.
The update carries importance beyond better near-term results. It strongly suggests that the market significantly underestimated the company’s ability to address its operating problems while combatting the headwinds facing all retailers. This turns investor perception from “the company is dying” to “the company could actually do OK”.
Signet shares, now at just over $30, have increased 72% from the $17.47 price at our initial recommendation this past October. Given the size and pace of improvements so far, and the remaining improvement potential and the still-undervalued share price, we are raising our price target to $35.
We are raising our price target on Signet Jewelers (SIG) to $35 and retain our Buy rating.
Disclosure Note: One or more employees of the Publisher own SIG shares.