The Ratings Game: Signet’s ability to avoid supply-chain problems will offset COVID-19 recovery spending shifts, says Bank of America
Signet Jewelers Ltd. was upgraded to neutral from underperform by Bank of America on Wednesday, as analysts expect the retailer’s supply chain to offset any shifts in spending during the pandemic recovery period.
Bank of America raised its price objective to $88 from $82, compared with its current price of about $84.
updated its guidance on Tuesday, raising both its third-quarter and full-year expectations.
“Customers are showing positive response to our new product launches, and the reduction in government stimulus and customer shift to spending on entertainment and travel are having less impact than we previously anticipated,” said Signet Chief Financial and Strategy Officer Joan Hilson in a statement.
“While there remain factors beyond our control, our strengthened supply chain and vendor partnerships gave us the ability to plan earlier receipt of holiday product, and we currently do not expect any material supply chain disruptions. Signet uses air freight for the transit of the vast majority of our merchandise, thus avoiding current ocean freight congestion.”
Supply chain problems have plagued retailers and other companies, with bottlenecks at West Coast ports, facility closures and other COVID-19 related problems delaying inventory as the big holiday shopping season gets under way.
See: Walmart, Target, Home Depot and other large retailers are chartering ships to bypass supply chain problems. Will the strategy save Christmas?
“We view this as a key advantage over the next nine months and now think
this offsets the risk of spending shifts towards other categories,” Bank of America analysts wrote.
The guidance update was part of an acquisition announcement; Signet purchased Diamonds Direct in a $490 million deal.
Also: Signet leaves the mall with $490 million Diamonds Direct acquisition, raises full-year guidance
“Signet is now comping the difficult comparison of last year in stride, and with muted supply chain impacts this holiday, Signet appears to be one of the best positioned companies in our universe heading into 4Q,” wrote Wells Fargo analysts.
“Further, between the Diamond Direct acquisition and their recent $225 million buyback program announced in 2Q22 (neither of which do we model any accretion for today)—we believe there is potentially $1.00+ of EPS accretion looming next fiscal year.”
Wells Fargo rates Signet stock at overweight with a $100 price target.
“This remains one of the cheapest stock under coverage, while also one of the most compelling turnaround stories,” analysts said.
Signet shares rose 3.7% on Wednesday, trading at about $84.62. Shares have skyrocketed nearly 210% for the year to date while the S&P 500 index
has gained almost 16% for the period.