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Why Michaels Stock Dropped 21% in July

Steve Symington, The Motley Fool

What happened

Shares of Michaels Stores (NASDAQ: MIK) fell 21% in July, according to data from S&P Global Market Intelligence, after multiple analysts weighed in on current state of the ailing craft and home-decor chain.

So what

To start, on July 11 Goldman Sachs' Kate McShane initiated coverage on Michaels with a "neutral" rating and $8-per-share price target, representing a modest 3% discount to its trading levels at the time. To justify her position, McShane argued the stock would likely remain under pressure given the potential impact of tariffs as well as today's increasingly promotional, competitive retail environment.

Stock market chart and data with a red arrow indicating losses.

IMAGE SOURCE: GETTY IMAGES

That's not to say it was all bad news; the following day, Loop Capital analyst Laura Champine reaffirmed her own "buy" rating a $15 price target, adding Michaels appeared to be making progress on recent merchandising initiatives, should be poised to name a permanent CEO soon (following the departure of Chuck Rubin from the post earlier this year), and boasted an "attractive" valuation assuming the business stabilizes by the end of this fiscal year.

However, shares resumed falling the next week when Bank of America/Merrill Lynch analyst Elizabeth Suzuki lowered her rating to "underperform" from "neutral," nearly slashing her price target in half to $5 (from $9). Incidentally, Suzuki echoed McShane's concerns over competition, saying Michael's profitability could suffer as it loses market share to its peers.

Now what

Barring a preliminary update from the company in the next few weeks, investors will need to wait until Michael's reports quarterly results in early September to determine whether these concerns were merited. But given the discouraging notes of caution from Wall Street in the meantime, it was no surprise to see the stock falling last month.


Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends Michaels Stores. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com