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BofA Downgrades Michaels, Morgan Stanley Stays Bullish After Q4 Print

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BofA Downgrades Michaels, Morgan Stanley Stays Bullish After Q4 Print

Michaels Companies Inc (NASDAQ: MIK) shares fell more than 6 percent Wednesday in the wake of the retailer reporting a fourth-quarter earnings beat and issuing weak first-quarter earnings guidance.

Michaels reported fourth-quarter adjusted EPS of $1.44 against a $1.42 estimate and sales of $1.789 billion versus a $1.78-billion estimate. 

The retailer guided to first-quarter adjusted EPS of 28-33 cents against a 40-cent estimate. 

The Analysts

Morgan Stanley analyst Simeon Gutman maintained an Overweight rating on Michaels and lowered the price target from $18 to $17.

Bank of America Merrill Lynch analyst Elizabeth Suzuki downgraded Michaels from Buy to Neutral and lowered the price target from $21 to $15.

The Thesis

Barring the emergence of a meaningful industry trend, BofA's Suzuki said she sees limited opportunity for the arts and crafts retailer to restart growth.

“The company is currently without a permanent CEO, and the lack of leadership is likely to prevent the kind of transformative change that we think Michaels will need to reverse the pattern of weak comps and margin deterioration,” the analyst said in a Wednesday note. 

The 2019 initiatives Michael’s referred to on its earnings call — including de-emphasizing low-turnover product and improving targeted marketing — “seem more like the normal course of running a retailer than market share drivers," Suzuki said. 

Morgan Stanley had a different take, taking the stance that Michael’s seems attractively valued relative to its cash flow and earnings profile.

“Given inexpensive valuation, strong FCF and potential for buybacks/debt paydown, we think in-line results are likely enough to realize value in the stock from here,” Gutman said in a Wednesday note. 

“MIK’s 2019 outlook does not embed material share repurchases. Assuming FCF of $400 million is used to buy back shares and pay down debt in roughly equal proportions could add a further 7 percent to EPS growth in 2019, by our estimate.”

Price Action

Michaels shares were down 6.25 percent at $11.99 at the close Wednesday. 

Related Links:

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Photo by Anthony92931/Wikimedia

Latest Ratings for MIK

DateFirmActionFromTo
Jan 2021Morgan StanleyDowngradesEqual-WeightUnderweight
Dec 2020JP MorganDowngradesOverweightNeutral
Dec 2020Morgan StanleyUpgradesUnderweightEqual-Weight

View More Analyst Ratings for MIK
View the Latest Analyst Ratings

 

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