Citi On Big Lots: Step Back And Look At The 'BIGger Picture,' Says Now Is The Time To Buy

Alvin Concepcion of Citi initiated coverage of Big Lots with a Buy rating and $58 price target as the company is undergoing a turnaround with a "capable" new management team that could drive high earnings growth at an "attractive" P/E multiple. According to Concepcion, Big Lots could drive same-store sales growth of two percent over the next three years, marking an improvement from the "sluggish" and negative growth the company experienced from 2011 to 2013. The analyst added that the company also has the potential to increase its EBIT margins to six percent by 2017 from 4.3 percent in 2014. Concepcion continued that investor confidence in the stock may be low as the investment community is "skeptical" the company can achieve its six percent retail operating margin in 2016. Moreover, investors likely lack faith the company can achieve the analyst's own 5.4 percent operating margin estimate. Concepcion pointed out that the stock has a 25 percent shore interest and trades at a lower P/E multiple versus the peer group despite its faster earnings growth prospects. As such, should the company achieve a 5.4 percent operating margin (or higher) in 2016, this would be viewed "favorably" by investors and may show that the company is on track to achieve a six percent EBIT margin goal (although one year later) by 2017. Bottom line, Concepcion argued that Big Lots' valuation is "attractive" and investors should expect "decent" upside to the stock over the next year.