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Value Expert Bets on Big Lots

The transformation at discount retailer Big Lots (BIG) continues to look good; in addition, the company is managing tariff issues well, asserts Hilary Kramer, editor of Value Authority.

The company reported fiscal second-quarter results — earnings per share (EPS) of $0.53 vs. $0.59 was $0.13 better than expectations. Total sales in the quarter were up 2.5%, with comparable store sales up 1.2%, both on the high end of expectations.

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The company’s "stores of the future" continue to do well, adding 1% to the comparable sales total, with those open two years continuing to strengthen in the second year.

The company left its EPS guidance for the year unchanged at $3.70 to $3.85 despite the earnings beat, as it expects continue gross margin pressure in the second half of the year. However, I think there is some element of conservatism in its forecast.

The stock continues to suffer from tariff-related and consumer spending fears, with investors ignoring the company’s recent progress in growing the top line and its very inexpensive valuation of just over 6X this year’s EPS.

Meanwhile, the company’s dividend yield is close to 5%, which appears very secure based on its current level of earnings and cash flow.

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I just believe a wave of emotion in the market right now regarding tariffs and retail stocks is causing indiscriminate selling, which I believe will reverse sometime before year end, as the company demonstrates it remains on the right track for an earnings recovery once its investment period passes.

The progress the company continues to make progress with its “stores of the future”concept and the positive consumer response to merchandising changes gives me confidence the current very depressed valuation of 6.5X this year’s EPS will eventually increase considerably — and I look for the shares to continue to trade higher through year’s end. 

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