Options Trade – Big Lots, Inc. (NYSE:BIG) Calls 
Sunday, March 02, 2014

**OPTIONS TRADE: Buy the BIG Apr 2014 30.000 call (BIG140419C00030000) at or under $1.90, good for the day. Place a protective stop limit at $0.75 and a pre-determined sell at $3.50.

by Ian Harvey

March 02, 2014


Discount retailer, Big Lots, Inc. (NYSE: BIG), will report its fourth quarter results before the market opens on March 6. The stock has underperformed the broader market so far in 2014, with shares falling 9.8% since the start of the year. Headed into the upcoming earnings report, analysts have forecast earnings of $1.42 per share.

Big Lots got off to a rough start this year, but the stock has been trending higher over the last month, and most recently got a boost after being upgraded by Deutsche Bank. The research firm upgraded the stock to "Buy" from "Hold" and increased its price target to $33, which is 12.9% higher than its current price. Even with the recent rebound, the stock is still trading at a very low valuation, with a price-to-earnings ratio of just 10.5. Because of its low P/E ratio, there is the potential for a big move higher should the company post upbeat quarterly results.

Company Details

Big Lots, Inc., through its wholly owned subsidiaries, is a North America's closeout retailer. At January 28, 2012, the Company operated a total of 1,533 stores in two countries: the United States and Canada.

The Company operates in two segments: U.S. and Canada.

The merchandising categories include Consumables, Furniture, Home, Seasonal, Play n' Wear, and Hardlines & Other. The Consumables category includes the food, health and beauty, plastics, paper, chemical, and pet departments. The Furniture category includes the upholstery, mattresses, ready-to-assemble, and case goods departments. The Home category includes the domestics, stationery, and home decorative departments. The Seasonal category includes the lawn and garden, Christmas, summer, and other holiday departments. The Play n' Wear category includes the electronics, toys, jewelry, infant accessories, and apparel departments. The Hardlines & Other category includes the appliances, tools, paint, and home maintenance departments.

Key Statistics for BIG

Current P/E Ratio (ttm) 10.2367
Estimated P/E(01/2014) 13.2928
Relative P/E vs. SPX 0.5961
Earnings Per Share (USD) (ttm) 2.8867
Est. EPS (USD) (01/2014) 2.2230
Est. PEG Ratio 1.5279
Market Cap (M USD) 1,725.19
Shares Outstanding (M) 58.38
30 Day Average Volume 1,227,483
Price/Book (mrq) 2.0887
Price/Sale (ttm) 0.3113
Dividend Indicated Gross Yield -%
Cash Dividend (USD) 0.0100
Dividend Ex-Date 08/29/2001
5 Year Dividend Growth -
Next Earnings Announcement 03/07/2014


Big Lots last posted its quarterly earnings results on Friday, December 6th. The company reported $0.10 earnings per share for the quarter, missing the analysts’ consensus estimate of $0.24 by $0.14. The company had revenue of $1.15 billion for the quarter, compared to the consensus estimate of $1.23 billion.

During the same quarter last year, the company posted ($0.10) earnings per share. Big Lots’s revenue was up 1.6% compared to the same quarter last year.

Analysts expect that Big Lots will post $2.22 EPS for the current fiscal year.

Analysts Opinions

Analysts at Deutsche Bank upgraded shares of Big Lots from a “hold” rating to a “buy” rating in a research note on Tuesday, February 18th. They now have a $33.00 price target on the stock, up previously from $32.00.

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.

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.

Also, the company has been the subject of a number of research reports:-

• Separately, analysts at JPMorgan Chase & Co. reiterated a “neutral” rating on shares of Big Lots in a research note on Friday, January 17th. They now have a $26.00 price target on the stock, down previously from $28.00.

• Finally, analysts at Raymond James upgraded shares of Big Lots from an “underperform” rating to a “market perform” rating in a research note on Thursday, January 16th.

Two analysts have rated the stock with a sell rating, eight have assigned a hold rating and five have issued a buy rating to the company’s stock. Big Lots has a consensus rating of “Hold” and a consensus price target of $34.83.


For a clue as to what is expected, a look at recent earnings from Wal-Mart (WMT) seems applicable. The company posted slightly better than expected earnings, but came in a little light on revenues, just barely missing the consensus estimate. It warned that the economic environment would remain challenging, due to a variety of reasons including reductions in government benefits and higher taxes. Despite the cautious remarks, WMT stock has traded higher since reporting its results.

These same factors could lead to a weak forecast from Big Lots as well.

Big Lots remains challenged, but with so much negativity already priced into the stock, it is a belief that it will not take a super quarter for the stock to trade higher. Barring any huge earnings miss, it is expected that the stock will move higher following its report.

Therefore, based on the facts above the following options trade is recommended…..

**OPTIONS TRADE: Buy the BIG Apr 2014 30.000 call (BIG140419C00030000) at or under $1.90, good for the day. Place a protective stop limit at $0.75 and a pre-determined sell at $3.50.

”Success is simple. Do what's right, the right way, at the right time.”

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Options traders win because they are successful.

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