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The U.S.-based sporting goods retailer, Big 5 Sporting Goods Corp. (BGFV - Analyst Report), remains on our Neutral list with a target price of $19.00.

Why Reiterate?

Big 5 Sporting Goods operates as sporting goods retailer in the western U.S. The company’s unique strategy of offering exclusive branded merchandise sourced from leading manufacturers impart it a competitive edge over other specialty retailer.

In addition, the company has implemented significant changes in its store operations to make it more customer-friendly. We expect these initiatives to induce more traffic to its stores and boost the top line.

Furthermore, Big 5 Sporting follows a disciplined capital allocation strategy, which focuses on making investments to develop its business, while using the excess cash to enhance shareholder returns through dividend payouts and share buybacks.

Further, we remain impressed with Big 5 Sporting’s consistent focus on improvising merchandise margins and effective cost management, which have enabled it to post better-than-expected bottom-line results for the sixth straight quarter.

In late October, Big 5 Sporting posted strong bottom-line results for third-quarter 2013, with adjusted earnings rising 15.4% to 45 cents per share from the year-ago and beating the Zacks Consensus Estimate by a penny. The robust results were aided by sales growth and improved margins. Moreover, the reported earnings met the higher end of Big 5 Sporting’s own guidance range of 40–45 cents per share.

With a positive surprise of 2.3% in the third quarter, Big 5 Sporting has beaten the Zacks Consensus Estimate for the trailing six quarters by an average of 24.2%. We expect Big 5 Sporting to continue its earnings streak in the coming years, aided by its growth initiatives.

However, we remain slightly cautious about the company’s performance due to a sluggish economic recovery that is impacting discretionary spending. Moreover, the entry of DICK’s Sporting Goods Inc. (DKS - Analyst Report) into smaller and mid-sized markets, and Sports Chalet and Sports Authority’s venture into the small store format may mar the company’s performance. Additionally, our Neutral stance is justified by tougher comparisons in the quarters ahead, given the heightened gun demand last year.

Other Stocks to Consider

Currently, Big 5 Sporting has a Zacks Rank #3 (Hold). Some better-ranked stocks in the retail industry include Barnes & Noble, Inc. (BKS - Snapshot Report) and Marinemax Inc. (HZO - Snapshot Report). Both the stocks carries Zacks Rank #2 (Buy).

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