Commerce Capital Boosts Michaels Stores to 'Strong Buy'

Analyst Richard Zimmerman says quarterly results from the arts and crafts chain trumped guidance

Commerce Capital upgraded Michaels Stores (MIK ) to strong buy from market outperform.

Analyst Richard Zimmerman says results were $0.09 above prior guidance, almost double year over year. He says apparel crafts, books and kid crafts contributed to positive same store sales. He also notes that gross margins rose 40 basis points to 34.2%, and benefited from leverage on occupancy costs, lower utility costs and common area maintenance charges.

Zimmerman says positive industry trends, improving inventory management, and management conservatism gives him confidence in the business. He raised his $1.82 fiscal 2003 (Jan.) earnings per share estimate to $1.88, and upped the $2.18 fiscal 2004 estimate to $2.24. He has a $48 target.

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