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Why Michaels Stock Popped Today

What happened

Shares of Michaels Companies (NASDAQ: MIK) were moving higher today for the second day in a row as the arts-and-crafts retailer got a boost from the market's rotation out of overbought growth stocks and into beaten down cyclical stocks like Michaels, which had sold off sharply with the rest of the consumer discretionary retail sector.

As a result, the stock was up 23.2% as of 3:31 p.m. EDT.

Image source: Getty Images.

So what

There was no specific news out on Michaels today. But non-essential retailers that had their stores closed for much of the shutdown period have rallied in recent days as the economy continues to reopen and progress toward a vaccine appears to be taking place.

There are also signs that there's pent-up demand for retailers like Michaels. TJ Maxx-parent TJX Companies (NYSE: TJX) said last week that the sales at stores that have reopened are above year-ago levels due in part to pent-up demand as sales of home goods have been particularly strong. In its earnings report, Walmart (NYSE: WMT) said that sales of crafts and fabric were particularly strong, which would seem to bode well for Michaels as it sells those products and others that are well-suited to social distancing and staying at home.

Now what

Michaels will deliver its first-quarter earnings report next Thursday, and better-than-expected results and positive commentary about reopening could drive a further surge in the stock. Analysts are expecting revenue to fall from $1.09 billion to $1.01 billion and for earnings per share to dip from $0.31 to $0.13.

Additionally, the retailer recently brought on a new CEO, Ashley Buchanan, who was previously chief merchandise and operating officer at Walmart U.S. e-commerce. Buchanan was expected to lead a turnaround at the retailer, but the COVID-19 pandemic has complicated matters. Nonetheless, new leadership would give investors further reason to be encouraged, depending on the company's report next week as the stock is still dirt cheap, according to traditional valuation measures.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends The Michaels Companies and The TJX Companies. The Motley Fool has a disclosure policy.


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