Analyst: This Stock Could Fall Another 40%

BofA-Merrill Lynch downgraded the equity to "underperform"

The shares of Michaels Companies Inc (NASDAQ:MIK) are swimming in red ink today, due to ugly analyst attention. BofA-Merrill Lynch downgraded the craft retailer to "underperform" from "neutral," and took a hatchet to its price target, cutting it to $5 from $9 -- a discount of 40% to yesterday's close of $8.37. The analyst said that even as domestic consumer spending has been on the rise, Michael's same-store sales growth has slowed, and the company will likely lower guidance in the upcoming quarters. Against this backdrop, MIK option bears are active.

MIK stock is down 5.3% at $7.92, and is within striking distance of its July 2 all-time low of $7.39. The equity has been in a steep slide since August 2018, ushered lower beneath its 60-day and 100-day moving averages.

While absolute options volume runs light on Michaels, the 526 puts traded so far today represent six times the average intraday put volume. Most of the action has transpired at the September 7.50 put, with bears buying the contracts to open. By doing so, they expect MIK stock to breach the $7.50 level -- and hit new record lows -- by the close on Friday, Sept. 20, when the options expire.

Although MIK is on the short-sale restricted list today, several shorts are likely cheering. Short interest surged nearly 21% in the past two reporting periods, and now accounts for more than a quarter of the security's total available float.