Big Lots Hit With Big Downgrade

Big Lots, Inc. BIG reported a "low quality" first-quarter earnings beat, which prompted Bank of America to turn bearish on the stock.

The Analyst

Bank of America's Jason Haas downgraded Big Lots from Buy to Underperform with a price target lowered from $45 to $23.

The Thesis

Big Lots reported EPS of 92 cents versus the consensus estimate of 70 cents, Hass wrote in the note. However, the outperformance includes a 39 cent per share add-back for inventory impairment and other factors along with a 14 cent per share add-back for a legal settlement loss contingency.

The company reported comps of 1.5 percent, which missed the analyst's estimate of 3 percent. Management attempted to attribute the miss to weather and a delay in tax refunds but Hass said these factors were already included in the analyst's estimate.

Management said it will accelerate the rollout of store remodels, but at the same time it also changed the language in its comp guidance. Specifically, management changed the comp benefit outlook from "high single digit to low double digits in most major markets" to "high single digits on average."

Given a lower degree of confidence in comp growth from store remodels, Haas said the stock is "likely to trade sideways at best" moving forward.

Price Action

Shares of Big Lots traded around $27.80 at time of publication.

Related Links:

Analysts Lower Big Lots Price Targets After Q3 Print

The Street Debates What To Do With Big Lots After Mixed Q4 Earnings

Photo credit: Mike Kalasnik via Wikimedia Commons