Goldman Liked Michaels Cos. Strong Runup

Michaels Companies Inc MIK's stock has appreciated 37 percent since January 21, as compared to the 9 percent increased in the S&P Retail Index.

Goldman Sachs’ Matthew J. Fassler downgraded the rating on the company from Buy to Neutral, while maintaining the price target at $30.

Several Positives

“We believe outperformance reflected a very solid 4Q operating performance and the market’s increased comfort with financial leverage over the past several months,” Fassler mentioned.

Related Link: Morgan Stanley Downgrades The Michaels Companies To Equal-Weight, Maintaines $25.00 PT

The analyst believes that the franchise retains its vitality, with robust visibility for 1Q, despite lackluster compares.

“We continue to view MIK as a consistent grower in a stable sector, with benefits associated with industry leadership, and consistent deleveraging,” Fassler stated.

The analyst pointed out that management has created innovative marketing as well as merchandising, which has helped Michael Co. beat sales expectations. The company is only beginning to capitalize on its potential for e-commerce, the analyst noted.

Capital Allocation

However, the company’s capital allocation has shifted, as compared to earlier expectations, given the recent Lamrite West acquisition and the share buyback authorization.

“We would prefer a strategy of straight debt pay down, but see limited impact from the Lamrite deal, and appreciate that the buyback has no expiry and is designed to allow for opportunistic deployment,” Fassler said.