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Michaels Cos. stock rallied 44.2% in Monday trading after the arts-and-crafts retailer was upgraded at JPMorgan, where analysts are bullish about sales momentum going forward.
JPMorgan moved Michaels MIK, +58.62% shares to overweight from neutral and raised its price target to $13 from $7.
“Building the path back to positive comps, in the near term we expect continued positive linearity from 1Q’s down 28% as states open,” analysts wrote. “Moreover, starting in 2Q, we estimate a 120 basis point benefit to comps over the next four quarters due to sales recapture from A.C. Moore’s liquidation.”
Nicole Crafts announced in November 2019 that it would shutter all of its A.C. Moore locations. The Berlin, N.J.-based chain had more than 145 stores on the East Coast from Maine to Florida.
Michaels assumed the leases for about 40 locations as well as the lease for an East Coast distribution facility. Michaels also purchased intellectual property in the deal.
JPMorgan says about 80% of A.C. Moore stores are within five miles of a Michaels location.
Michaels announced first-quarter earnings last week that missed expectations by a wide margin.
“Michaels is the market leader in an enthusiast-based category with new management investing in e-commerce, price perception, and innovation to reverse share loss,” analysts wrote.
In December, the company announced that it had appointed Ashley Buchanan, former chief merchandising and chief operating officer at Walmart Inc. WMT, -0.26% , as chief executive, effective April 1.
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As the coronavirus pandemic spread, causing stores to close, Buchanan said the company launched a number of digital services, including in-app purchase capabilities and curbside service, with a number of other digital capabilities on tap for the rest of the year.
Michaels expects most of its 1,273 stores to be open by the end of the month.
Michaels stock has more than doubled, up 117.5%, over the last three months. The S&P 500 index SPX, +1.20% is up 7.9% for the period.
Credit Suisse analysts aren’t quite as optimistic.
“We continue to monitor the sustainability of this momentum as consumers get out of their homes, as demand has previously been a key concern for us,” wrote analysts led by Seth Sigman.
Credit Suisse does note that seasonal categories appear to be doing well, and online sales are encouraging.
“Beyond that, we have sensed issues with store conversion over time, perhaps service and/or in stock related, and we believe addressing that will be important for the story to work,” analysts said.
Credit Suisse rates Michaels shares neutral with a $5 price target, up from $4.
