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6 Reasons Why This Michaels Analyst Is Turning Bullish

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6 Reasons Why This Michaels Analyst Is Turning Bullish

Arts and crafts retailer Michaels Companies Inc (NASDAQ: MIK) is an "attractive self-help story" with near- and long-term catalysts that will drive the stock higher, according to Credit Suisse.

The Michaels Analyst: Seth Sigman upgraded Michaels Companies from Neutral to Outperform with a price target lifted from $13 to $15.

The Michaels Takeaways: Credit Suisse's upgrade comes after Michaels reported Thursday morning with better-than-expected second-quarter results. 

Sigman named six reasons for the new bullish stance:

  • Second-quarter comps of 12% exceeded expectations, while stores were trending above 20% after reopening, with momentum carrying over into the third quarter.
  • Michaels deserves credit for recent improvements to inventory management, adapting selling hours and introducing merchandising and pricing initiatives.
  • Online sales growth was up 353% in the second quarter and generated incremental profit.
  • Second-quarter adjusted gross margins were down 170 basis points, but the back half of 2020 should improve. Margins are also up against overly pessimistic Street estimates of negative 220 basis points in the third quarter and negative 70 basis points in the fourth quarter.
  • Interest expenses for the back half of 2020 and 2021 will be lower after the company paid down debt in the second quarter and secured lower rates. This could result in further de-leveraging and/or share buybacks in fiscal 2021.
  • The stock's valuation is "supportive" at around five times fiscal 2021 EV/EBITDA. 

MIK Price Action: Shares of Michaels Companies were trading 3.5% higher at $10.04 at last check Friday. 

Related Links:

Michaels Companies: Q2 Earnings Insights

Michaels Companies: Debt Insights

Photo by Anthony92931 via Wikimedia

 

Latest Ratings for MIK

DateFirmActionFromTo
Sep 2020Wells FargoMaintainsEqual-Weight
Sep 2020Morgan StanleyMaintainsUnderweight
Sep 2020Credit SuisseUpgradesNeutralOutperform

View More Analyst Ratings for MIK
View the Latest Analyst Ratings

 

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