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Bear of the Day

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Big Lots (BIG - Analyst Report) ended its streak of consecutive beats at two after meeting estimates in quarter that was most recently reported. Estimates have dropped in a big way and that makes it a Zacks Rank #4 (Sell). It is the Bear of the Day.

Guiding Lower Comparable Store Sales

One big reason estimates have dropped was that the company guided to lower comparable store sales. Investors don't like to see negative numbers for this metric, but that is just what they got. A range of -2% to -4% means that revenue growth is challenged. The consolidated net sales was guided to a range of +1% to -1%. This means there will be lower sales from older stores and more sales from newer stores.

Company Description

Big Lots offers brand-name closeouts and bargains for customers. They offer a broad assortment of merchandise, including consumables, seasonal products, furniture, housewares, toys and gifts. Big Lots operates more than 1,400 retail stores serving 48 states. Big Lots was founded in 1967 and is headquartered in Columbus, Ohio.

Earnings History

Prior to the most recent earnings meet, the company was able to pull off two straight positive earnings surprises. The October 2012 quarter saw a beat of $0.14 which translated into positive surprise of 58%. The following quarter had a beat of $0.10 or 5% ahead of expectations.

Earnings Estimates Slip

Estimates for BIG fell substantially following the most recent quarter. In April 2013 the Zacks Consensus Estimate for BIG stood at $3.18. In June, the month after the report, the estimate had slipped to $2.95. Since then it has held still.

The 2014 Estimate also dropped in a big way. From $3.48 to $3.29. There has been additional weakness as the current 2014 estimate is down two pennies to $3.27.

Valuation

The valuation picture for BIG is a good one. With estimates moving lower and the stock falling after the most recent quarter the valuation becomes more and more attractive. The trailing and forward PE of 12.2x show a substantial discount to the industry average of 26.3x and 23.4x respectively. The price to book multiple if 2.6x is just short of being half of the industry average while the price to sales multiple could triple before it eclipses the industry average.

The Chart

The price and consensus chart really shows the story of what is going on at BIG. The estimates have been pointing the wrong way, sliding lower over time. The stock, however is holding steady despite the lower estimates. That is likely due to value players that think BIG can turn it around.

Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.

Brian is also the editor of Breakout Growth Trader a trading service that focuses on small cap stocks and also carries a risk limiting strategy. Subscribers get daily emails along with buy, and sell alerts.

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