Actions of Signet Jewelers (NYSE:SIG)the world’s largest diamond jewelry retailer, soared Wednesday after the company delighted investors with a stock buyback and raised its forecast to adjust for falling stock numbers.
Following the buyback, the company is raising its adjusted earnings per share forecast from $9.08 to $10.48 to $9.90 to $11.52, providing an additional boost to the company’s earnings. financial year 2026 because it benefits from a full year of reduced action. count.
What’s going on here
Signet has reached an agreement with private equity firm Leonard Green & Partners (LGP), which took a preferred stake in the company in 2016, to buy back half of LGP’s 8.2 million shares in the retailer. As a result, Signet buys back $4.1 million for $414 million, based on the April 1 stock price. Following this transaction, LGP’s stake will have a reported value of $328 million, on which it will receive a 5% dividend.
This transaction will reduce Signet’s diluted share count by 7.6%, and Signet will use cash from the $1.4 billion on its balance sheet. Signet will also record an $83 million reduction in net income to reflect the difference between what it sold the preferred shares for and what it pays.
Additionally, Signet agreed to pay LGP $328 million for the stated value of its remaining preferred stock balance, which will eliminate an additional 2.8 million shares, reducing its outstanding shares by approximately 7 million or 13%, which will give a 15% increase in profits. per share. The company will also save money by not having to pay out the roughly $34 million in annual preferred dividends it was paying.
Signet shows his muscles
For Signet, the transaction is as much a move to reward shareholders and reduce the number of shares as it reflects the gains the company has made under its Path to Brilliance strategy, which has delivered two-fold growth revenue figures while closing underperforming stores, and increased its gross margin by more than 400 basis points. The company also increased its adjusted EPS by almost 60% during this period.
In an interview with The Motley Fool, CFO Joan Hilson also noted that the buyout would reduce the company’s leverage ratio by 10%, putting it in a better position to make acquisitions and invest in the company.
Speaking in the same interview, CEO Gina Drosos highlighted the transformation that led to this, saying: “We have transformed as a company. We have created an operating model that very consistently generates cash,” and noted that the company generates almost 15 million euros. % of its company value per year, which makes Signet attractive for value of shares investors.
Is Signet a purchase?
Signet has quietly been one of the best performers on the market in recent years; jewelry stock has more than tripled in the past five years, shortly after launching its Path to Brilliance strategy.
The stock fell during its recent earnings report as investors were unimpressed with its guidance, but Signet rewarded investors with a 26% dividend increase. Wednesday’s share repurchase announcement is the company’s latest effort to return capital to shareholders, and the company is in an excellent position to do so with strong fundamentals and a price/earnings ratio about 10.
Signet also appears poised for growth in the coming years as it benefits from a resumption of engagements, which had turned into a pause in new relationships during the pandemic. The bridal business represents about 40% of the company’s revenue, so the expected tailwind over the next three years could be substantial, and the company has other growth drivers including services high-margin businesses like repair, which can boost profits.
With a 15% reduction in the number of shares outstanding and the recent 26% dividend hike, Signet appears more focused than ever on rewarding shareholders, and the stock remains a good value for expected growth. Shares of the jewelry leader continue to look like a buy.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the securities mentioned. The Mad Motley has a disclosure policy.
This value stock just surprised investors with a monster buyback. Is this a purchase? was originally published by The Motley Fool
