Bear of the Day: Big Lots (BIG)
Investors should look to sell into rallies until estimates turn around.
Big Lots (BIG) is a Zacks Rank #5 (Strong Sell) that operates as a broad-line closeout retailer operating in the United States. The company offers everyday consumables, housewares, toys and seasonal goods.
The stock has been in a downtrend since the summer, falling 45% from the June highs. After a disappointing guidance, BIG made new lows and rallied back to November highs. Estimates are starting to fall, so inventors should look into taking profits as the stock comes into technical resistance.
About the Company
The company offers products under various merchandising, seasonal, soft home, consumables and food categories. Big Lots has over 1400 stores in 47 states and an e-commerce platform. The company was founded in 1967 and is headquartered in Columbus, Ohio.
BIG is valued at $1.5 billion and has a Forward PE of 8. The company holds a Zacks Style Score of “B” in Value, but “F” in Growth. Big Lots does pay a dividend with yield of 2.5%.
Big Lots reported earnings in early December, coming in as expected. Revenue for the quarter did beat and the company announced a $250M stock buyback. They saw a strong start to Q4 due to Black Friday Sales, but they cut their FY21 outlook.
Big Lots also guided Q4 lower, seeing a range of $2.05-2.20 v the $2.38 expected. They expect “slightly positive growth” for the quarter.
FY21 was lowered to $5.70-5.85 v the $6.01 expected. Additionally, they see FY21 SSS increasing in the low single digits.
The guidance from earnings forced analyst to take numbers down and cut price targets.
For the current quarter, we have seen a drop over the last 60 days from $2.39 to $2.20, or 8%. With that, Goldman Sachs put a sell rating on the stock and lowered its price target from $58 to $43.
The stock was trading at $40 right after earnings and rallied all the way to $50, for a 25% gain in a month. This could have been a short squeeze after the negative quarter and investors should not view the move higher as a reversal.
There are two resistance areas that will limit the upside. First, we have the November sell zone, which was in the $50-52 area. Second, we have to 200-day moving average at $56. This is where the halfway back mark is drawn from June highs to recent lows. We likely see strong selling in those areas.
Big Lots had a nice run last year, but the stock has come back down to earth and likely trades in a $40-$50 range. Being at the top of that range, investors should look to sell current price and buy back lower.
For an investor interested in retail, a better option might be Costco (COST). The stock is a Zacks Rank #2 (Buy) and the company is coming off a 14% EPS last month.
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Big Lots, Inc. (BIG): Free Stock Analysis Report
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