Signet Jewelers Ltd Valuation – March 2019 #SIG
Company Profile (excerpt from Reuters): Signet Jewelers Limited, incorporated on June 25, 2008, is a retailer of diamond jewelry. As of January 28, 2017, the Company had 3,682 stores and kiosks. The Company’s segments include the Sterling Jewelers division; the Zale division, which consists of the Zale Jewelry and Piercing Pagoda segments; the UK Jewelry division, and Other. The Sterling Jewelers division’s stores operate in the United States in malls and off-mall locations principally as Kay Jewelers (Kay), Kay Jewelers Outlet, Jared The Galleria Of Jewelry (Jared) and Jared Vault. The Zale division operates jewelry stores (Zale Jewelry) and kiosks (Piercing Pagoda), located primarily in shopping malls throughout the United States, Canada and Puerto Rico. Zale Jewelry includes the United States store brand, Zales (Zales Jewelers and Zales Outlet), and the Canadian store brand, Peoples Jewellers. Piercing Pagoda operates through mall-based kiosks. The UK Jewelry division operates stores in the United Kingdom, Republic of Ireland and Channel Islands, principally as H.Samuel and Ernest Jones. The Other segment includes the operations of subsidiaries involved in the purchasing and conversion of rough diamonds to polished stones.
Downloadable PDF version of this valuation:
ModernGraham Valuation of SIG – March 2019
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 | $1,440,038,868 | Fail | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 2.20 | 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 | 5.20% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 11.44 | Pass | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 0.73 | 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 | 2.20 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.40 | Pass | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Fail | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Fail | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $2.42 |
| MG Growth Estimate | -4.25% |
| MG Value | $1.29 |
| Opinion | Overvalued |
| MG Grade | D+ |
| MG Value based on 3% Growth | $35.13 |
| MG Value based on 0% Growth | $20.59 |
| Market Implied Growth Rate | 1.47% |
| Current Price | $27.71 |
| % of Intrinsic Value | 2149.19% |
Signet Jewelers Ltd. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability or growth over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $4.32 in 2015 to an estimated $2.42 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 1.47% 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 below the price.
At the time of valuation, further research into Signet Jewelers Ltd. revealed the company was trading above its Graham Number of $0. The company pays a dividend of $1.24 per share, for a yield of 4.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 11.44, which was below the industry average of 62.84, 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 $1.29.
Signet Jewelers Ltd. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | $1.29 |
| Graham Number | $0.00 |
| PEmg | 11.44 |
| Current Ratio | 2.20 |
| PB Ratio | 0.73 |
| Current Dividend | $1.24 |
| Dividend Yield | 4.47% |
| Number of Consecutive Years of Dividend Growth | 7 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
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| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 10/1/2018 |
| Total Current Assets | $3,010,100,000 |
| Total Current Liabilities | $1,365,700,000 |
| Long-Term Debt | $660,400,000 |
| Total Assets | $4,907,500,000 |
| Intangible Assets | $849,200,000 |
| Total Liabilities | $2,943,700,000 |
| Shares Outstanding (Diluted Average) | 51,500,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | -$6.23 |
| Jan2018 | $7.44 |
| Jan2017 | $7.08 |
| 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 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $2.42 |
| Jan2018 | $6.48 |
| Jan2017 | $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 |
Recommended Reading:
Other ModernGraham posts about 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.
