UPDATE: J.P. Morgan Upgrades Big Lots to Neutral, Raises PT on Balanced Risk/Reward

In a report published Monday, J.P. Morgan analyst Matthew R. Boss upgraded the rating on

from Underweight to Neutral, and raised the price target from $28.00 to $32.00. In the report, J.P. Morgan noted, “We are upgrading Big Lots to Neutral from Underweight with the risk/reward more balanced following 40% underperformance over the past year (-22% vs. SPX +18%). While structural questions remain (30K sq ft boxes, closeout competition, online), the setup has changed since our downgrade to Underweight last year (8/10/12: Micro Issues & Discretionary Mix; Wrong Place at The Wrong Time; Downgrade to UW) given the combination of (1) easing discretionary comparisons (Home & Furniture compares ease ~500bps in 2H), (2) 3 initiative tests in process (coolers/SNAP, remodel program, and urban stores), and (3) new management at the helm (CEO on 4/30) with the stock now pricing in a 2Q miss and 2H guidance reduction (trading sub-5x EBITDA) given lateral retail prints, in our view. Near-term, we raise our 2Q EPS to $0.28 from $0.24 (vs. $0.17-$0.27 guidance) with our store work pointing to an achievable 2Q bar (guidance set ~50% below the Street w/ + June weather break), but move to Neutral (rather than Overweight) given a ‘transition year' likely on tap in FY14 (lowering FY14 EPS to $3.00 from $3.15) as new management shifts capital priorities (coolers & remodels > new stores & buyback) to refocus on improving the core – a prudent LT decision, in our view. Dec '14 PT = $32.” Big Lots closed on Friday at $32.25.