Michaels Stock Set to Bounce on Buyback News

Michaels stock recently suffered a post-earnings bear gap

Managing Editor
Sep 7, 2018 at 9:27 AM
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The Coca-Cola Co
The Coca-Cola Co
The Coca-Cola Co
The Coca-Cola Co
The Coca-Cola Co

Shares of Michaels Companies Inc (NASDAQ:MIK) is up 0.4% in pre-market trading, after the craft supply retailer's board of directors authorized a new buyback program for up to $500 million of common stock. CEO Chuck Rubin remarked that since the company made its public trading debut in 2014, it has"generated nearly $2 billion in cash from operations, of which $900 million has been allocated towards share repurchases and more than $500 million towards debt reduction."

The stock has been churning below its 320-day moving average since late March, with a mid-July breakout attempt quickly halted by MIK's 120-day trendline. More recently, the security suffered a post-earnings bear gap on Aug. 30 that paved the way to yesterday's four-year low of $15.85. Year-to-date, MIK is down 33.7%, based on last night's close at $16.03.

Looking toward sentiment data, Michaels stock's short-term options are attractively priced right now. The retailer's Schaeffer's Volatility Index (SVI) of 36% is in just the 14th percentile of its annual range, suggesting near-term options are pricing in relatively low volatility expectations.

In recent weeks, MIK premium buyers have targeted the September 22.50 call, which has seen the biggest increase in open interest over the last 10 days. Those buying the calls may be betting on a big breakout for the retail stock, though this could also be indicative of shorts hedging against any upside risk.

Although short interest fell 17% during the past two reporting periods, the 17.94 million shares still sold short represent 19% of the stock's total available float. At the equity's average pace of daily trading, it would take shorts more than two weeks to buy back these bearish bets.


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