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Why Big Lots Inc. Is Ready to Rebound

By Brian D. Pacampara, CFA – Feb 18, 2014 at 9:58AM

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Does this analyst make a good case? Or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Big Lots (BIG 3.50%) gained 3% this morning after Deutsche Bank upgraded the closeout retailer from hold to buy.

So what: Along with the upgrade, analyst Paul Trussell raised his price target to $33 (from $32), representing about 25% worth of upside to Friday's close. While momentum traders might be turned off by the stock's sharp plunge in recent months, Trussell thinks Big Lots might now be too cheap to pass up given its improving assortment of goods and various financing/payment options.

Now what: According to Deutsche, Big Lots' risk/reward trade-off is pretty attractive at this point. "While we acknowledge an increasingly competitive environment and headwinds faced by consumers, BIG has the lowest sales productivity in our universe and we believe an edited, yet improved assortment that includes coolers, access to EBT, furniture financing, and the development of an omni-channel presence should help BIG return to at least its historical earnings power of ~$3.00," noted Trussell. So while Big Lots' competitive position remains far too frail for conservative Fools, its near-term turnaround potential might be attractive to more enterprising contrarians. 

Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Big Lots Stock Quote
Big Lots
BIG
$19.22 (3.50%) $0.65

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