Signet Jewelers Ltd. SIG shares declined 10 percent, following the disappointing 1Q17 earnings announcement.
Goldman Sachs’ Lindsay Drucker Mann downgraded the rating on the company from Buy to Neutral, with a price target of $119.
Stock Underperforms
Removing Signet Jewelers from Goldman Sachs’ Conviction Buy List, Mann mentioned, “Our enthusiasm for SIG’s long-term growth prospects is dampened by a surprising deceleration in business momentum that materialized in April and persisted into May. We prefer to wait on the sidelines until clarity on comps improves.”
The analyst believes that the underperformance of the stock since October 2015 has been driven by investor concerns regarding Signet Jewelers’ credit book and comp deceleration.
Long Term View
The company announced a strategic review of the Sterling credit portfolio, which Mann believes could “unlock the power of SIG’s balance sheet and improve sentiment.”
At the same time, Mann expressed concern regarding the comp sales deceleration in April, which occurred despite tailwinds such as successful marketing and product initiatives, and improvement in jewelry CPI.
On the other hand, according to the Goldman Sachs report, “While the broader retail environment has been weak, SIG is relatively insulated from pressures like ecommerce adoption and mall traffic declines because of its category exposure.”
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