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Signet Jewelers Ltd Valuation – Initial Coverage $SIG

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – December 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Signet Jewelers Ltd (SIG) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Signet Jewelers Limited is a retailer of jewelry, watches and associated services in the United States, Canada and the United Kingdom. The Company’s segments are the Sterling Jewelers division, the UK Jewelry division, the Zale division, which consists of Zale Jewelry and Piercing Pagoda, and the Other segment. The Other segment includes subsidiaries involved in purchasing and conversion of rough diamonds to polished stones. The Company operates retail jewelry stores in various real estate formats, including mall-based, free-standing, strip center and outlet store locations. It operates approximately 3,620 stores and kiosks across approximately five million square feet of retail space. The Sterling Jewelers division operates approximately 1,540 stores. Its stores operate nationally in malls and off-mall locations as Kay Jewelers, and regionally under various mall-based brands. Zale Jewelry consists of brands, including Zales Jewelers and Zales Outlet.

SIG Chart

SIG data by YCharts

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of SIG – January 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $6,155,854,680 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 3.41 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -7470.83% Fail
6. Moderate PEmg Ratio PEmg < 20 15.29 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.91 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 3.41 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.41 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $5.77
MG Growth Estimate 15.00%
MG Value $222.15
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $83.67
MG Value based on 0% Growth $49.05
Market Implied Growth Rate 3.39%
Current Price $88.22
% of Intrinsic Value 39.71%

Signet Jewelers Ltd. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.84 in 2013 to an estimated $5.77 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.39% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Signet Jewelers Ltd. revealed the company was trading above its Graham Number of $71.41. The company pays a dividend of $1 per share, for a yield of 1.1% Its PEmg (price over earnings per share – ModernGraham) was 15.29, which was below the industry average of 26.36, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $4.06.

Signet Jewelers Ltd. performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $4.06
Graham Number $71.41
PEmg 15.29
Current Ratio 3.41
PB Ratio 2.91
Current Dividend $1.00
Dividend Yield 1.13%
Number of Consecutive Years of Dividend Growth 6

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Most Recent Balance Sheet Figures

Balance Sheet Information 10/1/2016
Total Current Assets $4,555,000,000
Total Current Liabilities $1,335,000,000
Long-Term Debt $1,324,200,000
Total Assets $6,487,500,000
Intangible Assets $936,800,000
Total Liabilities $4,256,300,000
Shares Outstanding (Diluted Average) 73,600,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $7.07
Jan2016 $5.87
Jan2015 $4.75
Jan2014 $4.56
Jan2013 $4.35
Jan2012 $3.73
Jan2011 $2.32
Jan2010 $1.83
Jan2009 -$4.62
Jan2008 $2.55
Jan2007 $3.07
Jan2006 $2.71
Jan2005 $2.94
Jan2004 $0.10
Jan2003 $2.47
Jan2002 $1.98
Jan2001 $1.90
Jan2000 $1.71
Jan1999 $0.13
Jan1998 $0.65
Jan1997 $0.08

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $5.77
Jan2016 $4.96
Jan2015 $4.32
Jan2014 $3.86
Jan2013 $2.84
Jan2012 $1.78
Jan2011 $0.88
Jan2010 $0.48
Jan2009 $0.31
Jan2008 $2.61
Jan2007 $2.51
Jan2006 $2.17
Jan2005 $1.89
Jan2004 $1.45
Jan2003 $1.97
Jan2002 $1.57
Jan2001 $1.21

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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