Wachovia upgrades Michaels Stores (MIK) to outperform from market perform.
Analyst Ralph Jean notes 80 cents fourth-quarter earnings per share beat his 77 cents estimate, driven primarily by lower-than-expected tax rate, which resulted in 2 cents of upside.
He also notes that a 109-basis-point improvement in gross margin was offset by a 40-basis-point increase in expense ratio, despite strong same-store sales increase of 7%. He raises his 24 cents fourth-quarter earnings per share estimate to 27 cents and $1.72 fiscal 2006 (ending January) to $1.80.
Jean sets a preliminary $2.05 fiscal 2007 earnings per share estimate. He believes the company continues to execute well and is benefiting from recent systems upgrades.