Option Trade 
Big Lots, Inc. (NYSE:BIG) Calls
Thursday, August 27, 2015

**OPTION TRADE: Buy the BIG Oct 2015 42.500 call (BIG151016C00042500) at approximately $1.70. Place a protective stop loss at $0.65, and a pre-determined sell at $3.00.

by Ian Harvey

August 27, 2015


Big Lots, Inc. (NYSE: BIG), a United States-based discount retailer, will report its second-quarter results before the market opens on August 28. Analysts expect quarterly earnings of $0.34 per share, up from $0.31 during the same period last year. The stock is up 6.6% on the year.

BIG has struggled over the last couple of months, but shares appear to have formed a solid level of support around $41.75. If the company is able to deliver a solid set of quarterly numbers, the stock should build some momentum and erase some of its recent losses.

It has been a mixed earnings season for retailers, but it is believed that BIG is in good shape to deliver another solid report, and top analyst estimates for the third straight quarter.

Consumer confidence remains OK, but it has started to waver a bit. This bodes well for discount retailers, since consumers are likely to tighten up spending a little, and look for the best value for their money.

Big Lots has been in the process of implementing a restructuring to its business in order to compete with lower overhead online retailers. Big Lots is part of a bigger retail picture of companies that are all in the process of trying to come with online-in-store hybrid models. The company is trying to appease investors by driving traffic to its stores by offering consumables, targeting its customer base selectively, and deploying capital back to shareholders.

In addition to this the company has been managing its stock well, allocating capital to shareholders and reducing the share count consistently to help bolster the company's earnings.

Technical Details

Shares of Big Lots opened at 40.99 on Thursday. The stock has a market capitalization of $2.13 billion and a price-to-earnings ratio of 15.66.

The company has a 50-day moving average of $43.16 and a 200 day moving average of $46.23. Big Lots has a 12-month low of $38.15 and a 12-month high of $51.75.


Previous Earnings

Big Lots last released its earnings results on Friday, May 29th. The company reported $0.60 earnings per share (EPS) for the quarter, topping the Thomson Reuters consensus estimate of $0.59 by $0.01. The firm earned $1.28 billion during the quarter. The company’s quarterly revenue was down .1% compared to the same quarter last year.

During the same period last year, the company earned $0.50 earnings per share. On average, analysts expect Big Lots to post $2.91 EPS for the current fiscal year and $3.44 EPS for the next fiscal year.

Forward Earnings

Analyst estimates are calling for $0.34 per share in earnings for the current quarter, compared to $0.31 that the company earned a year prior. Revenue is expected to be identical to last year at $1.2 billion for the quarter. The EPS gain is a result of the continued reduction of shares at BIG and strategic initiatives management has put into place to control cost at certain locations while still being able to expanding on the breadth of what the company offers.

For the year, BIG is expected to earn $2.91 and for 2016 it's expected to earn $3.51, giving it a very attractive valuation on an earnings basis.

Moving Forward

Looking ahead, as the company continues with strategic growth efforts, its financial performance will continue to improve in the quarters ahead. Increased focus on key growth generating categories such as food and furniture has been positively affecting the company's performance. Thus far, both categories are performing exceptionally well; as far as the food category is concerned, BIG's initiative to facilitate food category customers with the active roll out of coolers and freezers has increased the range of food offered at the company's stores. In fact, BIG has completed the roll out of freezers and coolers to almost 1,300 stores, year-to-date. Moreover, the company is proceeding well with its initiative to remodel the food department of its stores.

In addition to managing its stores well, the company continues to manage its stock well. It continues to repurchase shares and return cash to shareholders using dividends. Its current dividend of $0.19 gives it a yield of 1.75% that has been growing.

Analysts Opinions

Big Lots had its stock rating reiterated as buy by investment analysts at Wedbush. This was released in an analyst note on 26 August.

The company has also been the subject of a number of other research reports:-

• S&P Equity Research upgraded Big Lots from a “sell” rating to a “buy” rating and set a $52.00 price target for the company in a research report on Monday, June 1st.

• Cantor Fitzgerald boosted their price objective on Big Lots from $44.00 to $45.00 and gave the company a “hold” rating in a research report on Monday, June 1st.

• Zacks raised Big Lots from a “sell” rating to a “hold” rating in a research note on Tuesday.

• Finally, FBR & Co. reissued an “outperform” rating and set a $60.00 price objective on shares of Big Lots in a research note on Monday, June 1st.

Out of 15 analysts covering Big Lots, 11 rate it a Buy, 4 indicate a Hold while 0 suggest a Sell. The highest target is $61 and the lowest is $45 according to Thomson/First Call. The 12-month mean target is $54.83, which means upside potential of 33.76% over the current price.

Harvey’s Options Volatility Indicator


Big Lots continues to focus on the furniture as well as the food and consumables categories, as these have been consistently gaining traction. Further, the company has been actively rolling out cooler/freezer facility to expand merchandise of food-related items to target food stamp recipients. These initiatives will continue to boost the company’s comps and revenues going forward.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

**OPTION TRADE: Buy the BIG Oct 2015 42.500 call (BIG151016C00042500) at approximately $1.70. Place a protective stop loss at $0.65, and a pre-determined sell at $3.00.

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

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.

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