Michaels Downgraded To Neutral At JPMorgan; Up 25% In 2016
JPMorgan has downgraded Michaels Companies Inc (NASDAQ: MIK) to Neutral from Overweight, citing risk to sales forecasts of second-half 2016 and 2017 and relatively full valuation considering the expected pace of earnings growth.
Moreover, the stock has outperformed substantially this year (+25 percent), and this setup makes it difficult to see outperformance.
"[W]e also note that the PE sponsors still own 50 percent of the stock and sold shares into a negative preannouncement vs. Street consensus last week, which is concerning, in our view," analyst Christopher Horvers wrote in a note.
In addition, there is a tough second-half setup with underlying trends' guided acceleration. The current consensus comps for the third and fourth quarter imply this underlying trend will speed up to about 2.5 percent in the back-half, with two-year "stacks" stepping up materially in the fourth quarter.
"If MIK held the estimated underlying trend from 2Q in 2H16, this would imply comps in the 1.0–1.5 percent range vs. current consensus of 2.9 percent and 2.7 percent in 3Q16 and 4Q16, respectively," Horvers noted.
Looking ahead to 2017, the Street is modeling a 2.4 percent comp (versus JPMorgan at 2.0 percent), which could be full considering the business has averaged a 1.9 percent same-store sales gain over the past 15 years.
Horvers expects earnings of $1.93 and $2.14 for 2016 and 2017, respectively, down $0.01 and $0.05 versus consensus.
The analyst also cut the price target by $3 to $30 on the stock, which closed Monday's regular trading session at $27.56.
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Latest Ratings for MIK
|Jan 2017||JP Morgan||Upgrades||Neutral||Overweight|
|Dec 2016||Raymond James||Downgrades||Outperform||Market Perform|
|Dec 2016||Deutsche Bank||Maintains||Buy|
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