Shares of The Michaels Company (MIK) are up sharply today after J.P. Morgan analyst Christopher Horvers upgraded the stock to overweight with a share price target of $13, up from a previous $7 target. The analyst believes the arts and crafts retailer has the best upside potential from current prices in the group of retailers that were forced to close stores because of COVID-19.
Horvers said the boost in optimism on the economy as states have begun to reopen has created a value opportunity. Michaels said in its first-quarter earnings report last week that about 1,000 of its 1,273 stores have been reopened, including more than 500 in just the last month.
The analyst added Michaels to his focus list, saying, "a path to positive comps over the next four quarters, new management, and improving margin performance into 2021 should drive a rerating of the shares." Michaels announced late last year that Ashley Buchanan would become the new CEO, effective April 1, 2020.
Michaels continued its business through the restrictions of the pandemic by adding contactless curb-side pickup and same-day delivery services. In the earnings report, Buchanan expressed optimism in sales trends as stores reopen. He added, "we significantly accelerated Michaels' transformation into an omnichannel retailer by introducing a robust set of customer facing digital and fulfillment capabilities."
Comparable store sales were down 28% versus the year-ago quarter, and the company expects continued weakness in the second quarter. However, it expects to generate positive cash flow in the second half of 2020.