Michaels Companies Inc (NASDAQ: MIK) shares were down more than 5 percent Monday after the retailer's stock was downgraded by Morgan Stanley.
Simeon Gutman downgraded Michaels Companies from Overweight to Equal-weight and lowered the price target from $17 to $10.
Michaels has a small chance of a positive inflection in fundamental performance in the near-term, Gutman said in the Monday downgrade note. (See his track record here.)
“This is the catalyst of our ratings change, as we no longer think potential financial leverage from debt paydown/share repurchases is enough to drive outperformance for the stock."
Morgan Stanley's previous upgrade to Overweight in early 2017 was based on the view that the business was attractively valued relative to its free cash flow profile, “as we thought financial leverage could drive stock outperformance," the analyst said.
Yet a 15-percent share count reduction and flattish debt have not been enough to offset weaker-than-expected operating performance, Gutman said.
Although the analyst said Michaels is significantly cheaper on valuation, he said the immediately challenges facing the retailer are compounded by the lack of a permanent CEO and emerging questions around its longer-term strategy.
“This makes us more comfortable downgrading the stock here."
Michaels Companies shares were down 5.22 percent at $9.90 at the time of publication Monday.
Etsy Reports Big Q4 Earnings Beat, Active Buyers Grow 18%
Morgan Stanley Is Watching Etsy's Traction, Raises Price Target
Photo by Anthony92931/Wikimedia.
Latest Ratings for MIK
View More Analyst Ratings for MIK
View the Latest Analyst Ratings
See more from Benzinga
- Zion Williamson's Marketability Takes A Big Hit If He Lands With The Pelicans
- 5 Stocks Moving In Thursday's After-Hours Session
- Nvidia Trades Higher After Q1 Earnings Beat, CEO Says It's Back On Upward Trajectory
© 2019 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.