Credit Suisse Upgrades Michaels To Outperform, Says Near-Term Risks Priced In

The brokerage said the company has set a lower bar for second half, with potential for comps/margins to improve after a somewhat disappointing second quarter. The company's sales could benefit from key seasonal events include the seasonal change to Fall, Halloween, Thanksgiving and Christmas.

"Having spent time with management and visiting stores recently, we are more confident that Q3 comps of ~1 percent (mid-point), and Q4 comps of 2 percent will be achievable," analyst Seth Sigman wrote in a note.

Further, Sigman expects an improvement in margins in the fourth quarter, driven by an initial wave of lower cost benefits and the contribution from Lamrite as Michaels sells through that product.

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Apart from forex gains, the company faces less demand cyclicality, less e-commerce risk and continued growth in traffic.

Sigman also highlighted consolidation optionality, which has been a big positive for leaders in other sectors. On the consolidation front, the analyst sees "hundreds of millions of dollars up for grabs over time."

The analyst projects EPS of $1.95 in 2016 implies 13 percent growth, and $2.15 in 2017 implies 10 percent, with optionality from sourcing initiatives, the integration of Lamrite, new B2B growth opportunities, and capital return, which are not fully in these numbers.

"In a base case, MIK can generate 3–4 percent sales growth, 6–7 percent EBITDA growth, 10+ percent EPS growth," Sigman added.

The analyst reaffirmed his target price of $29, implying a potential upside of 19 percent over Friday's close of $24.41.

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