Deutsche Bank Downgrades Big Lots From Buy To Hold

Big Lots, Inc. BIG is likely to find it difficult to meet the consensus expectations for both 1Q and FY16 Deutsche Bank’s Paul Trussell said. The analyst downgraded the rating for the company from Buy to Hold, while reducing the price target from $49 to $47.

Over the years, Big Lots has transformed into a “steadily positive comp growth story,” analyst Paul Trussell said. He added, however, that although furniture and home segments are likely to continue performing in-line with expectations, sales of lawn & garden and outdoor décor are expected to come under pressure.

Pressure On Margins

Trussell expects Big Lots’ margins to be adversely impacted by:

1. A ramp-up in price investments by Wal-Mart Stores, Inc. WMT
2. Acceleration in labor wage inflation, with the new Labor Department regulation in place
3. Increased online promotions by Big Lots to get mindshare

Expectations

The analyst expects Big Lots to achieve a 1Q EPS of $0.67, below the Street expectation of $0.70 and at the low-end of guidance of $0.66-$0.72. The company’s SSS is estimated to be up 1.3 percent, below the Street at 2.3 percent. The EPS estimates for 2016 and 2017 have been reduced from $3.28 to $3.24 and from $3.94 to $3.65, respectively.