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Big Lots, Inc. (NYSE: BIG) reported strong 1Q16 results. Citi’s Alvin C Concepcion maintained a Buy rating for the company, while raising the price target from $53 to $62.
Following Big Lots’ 1Q results, analyst Alvin Concepcion raised the EPS estimates for FY17, FY18 and FY19 from $3.32 to $3.47, from $3.80 to $3.90 and from $4.18 to $4.20, respectively. The analyst cited the updated guidance and trends as the reasons for the upward revision.
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Turnaround Underway
Big Lots has been undergoing a turnaround, under the guidance of a capable new management team, and is likely to generate strong earnings growth. The company should be able to achieve solid EPS growth over the next 3 years, backed by potential SSS leverage and achievable margin-enhancing opportunities. Concepcion commented that given these growth prospects, the valuation appeared attractive.
Over the past 5 years, Big Lots’ forward P/E has traded between a 10 percent premium and a 40 percent discount, with a median discount of about 25 percent to the peer group. Concepcion believes that the 25 percent discount to the peer group average is “justifiable.”
Although Big Lots’ leverage is lower than the peer group, prospects are for the company’s EPS growth to be slower at ~24 percent, with 30 percent slower SSS growth, slower total sales growth, lower margins, and higher execution risk given its turnaround situation, the analyst said.
“For P/E, we apply a 15.8x (previously 13.9x) 2016 P/E multiple, which is a 25% discount (previously 30% discount but changed due to strong 1Q results, giving us more confidence in our estimates) to the peer group’s 2016 average P/E of ~21x (previously 19.8x), to our 2017 EPS estimate of $3.90 (previously $3.80) to derive a $62 (previously $53) per share valuation,” the Citi report noted.
Crypto Whales Are Loading Up — Are You?
New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.