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Morgan Stanley Downgrades Michaels Companies To Equalweight


Morgan Stanley’s Simeon Gutman downgraded the rating on Michaels Companies Inc (NASDAQ: MIK) from Overweight to Equal-weight, with a price target of $25.

EPS Upside Potential

Gutman believes that the company is a “steady grower with slight EPS upside potential.” However, this upside depends on comps of 3 percent, gross margin expansion of 20bps and better-than-average earnings flow through in 2017.

Although an earnings beat usually drives the stock higher, “modest EPS beats may not be enough to lift MIK shares much higher,” Gutman pointed out.

Related Link: JC Penney Met With The Sell-Side: Here's What Happened

The analyst explained that the downgrade was based on the stock offering balanced risk/reward at the current levels, with the bull case assuming a 10x EBITDA multiple.

A bear case for the stock assumes 1 percent comps with 15bps gross margin contraction, as well as “slight expense deleverage related to increased wages & investments.”

Consensus Forecasts

The 2016 estimates, however, reflect mostly robust results, while the consensus forecasts assume a soled 8.5 percent EBIT dollar growth rate, marginally higher than the estimates.

“The Street's 2.5 percent comp estimate for next year leaves little room for upside given ongoing FX headwinds. Related, it appears the Street is already giving MIK the benefit of the doubt on FX,” according to the Morgan Stanley report.

In the existing comp range, the analyst believes that the consensus expectation of $1.92 for 2016 appears achievable although not very beatable.

Latest Ratings for MIK

Mar 2021Loop CapitalDowngradesBuyHold
Mar 2021Morgan StanleyUpgradesUnderweightEqual-Weight
Jan 2021Morgan StanleyDowngradesEqual-WeightUnderweight

View More Analyst Ratings for MIK
View the Latest Analyst Ratings


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