Barclays: Time To Buy Big Lots

In a report published Tuesday, Barclays analyst Meredith Adler upgraded the rating on Big Lots, Inc. BIG from Equal-Weight to Overweight, while maintaining the price target at $53.

Big Lots' share price declined recently, while the company is making "meaningful progress" on its initiatives. Big Lots reported positive comps for 1Q15, despite positive comps in the year-ago quarter. With the comps being easier last year, it is unclear why "sentiment has turned more negative recently," analyst Meredith Adler said, while adding that the stock valuation now seems "very reasonable."

Management believes that FY15 is an investment year, though the outlook is "much clearer than in the past."

Adler said that he had "gotten comfort on two important issues" -

• Big Lots is being able to provide good value to customers even while the company de-emphasizes closeouts. This is being achieved with improving relationships with domestic vendors and sourcing more products overseas in categories like soft home, which had previously been bought as closeouts before. "The key is that the quality and appeal of the product is much higher now."
• Big Lots' strategy is to gain a strong foothold in five categories, namely furniture, soft home, food, non-food consumables, and seasonal. Each of these categories may attract a different group of customers. The company recognizes that "success is possible even if customers don’t shop multiple categories." The effort is focused on each category providing "noticeable value" to customers.

Big Lots reported its 1Q15 EPS at $0.60, marginally ahead of the estimates. The EPS estimate for FY15 has been raised from $2.83 to $2.87.