Big Lots (BIG) Valuation Compelling but Investors Skeptical LBO Will Materialize

January 31, 2013 12:54 PM EST Send to a Friend
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Price: $45.58 -0.48%

Rating Summary:
    13 Buy, 9 Hold, 0 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 24 | Down: 28 | New: 14
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Shares of Big Lots (NYSE: BIG) climbed over the past several weeks on talk of renewed interest by private equity. Reports say the retailer could fetch $40 per share. According to analysts at MKM, this price is within their LBO price range of $35 to $42. However, BIG currently trades at only $32, suggesting investors remain skeptical a deal will take place.

In the view of analyst Patrick McKeever, skepticism likely reflects a number of factors, including unconfirmed reports of a failed auction in spring 2011 and reports claiming the retails hasn't fired a financial advisor.

"We believe investors are also looking at industry valuation metrics and noting that multiples have come down in recent months, particularly for the dollar store stocks to which BIG is often compared," said McKeever. "That said, the private equity interest seems reasonable to us, especially with the stock down 33% from its 52‐week high and valuation as depressed as it is."

BIG trades at only 10.0x MKM's 2013 EPS estimate of $3.17, only 5.3x on an EV/EBITDA basis and only 0.3x sales, noted a report by the firm.

"These are among the lowest valuation metrics in our coverage universe and across retail, and they are well below the five‐ and ten‐year multiples," pointed out the analyst.

MKM Partners has a Neutral rating on Big Lots with a fair value estimate of $33.00.

For an analyst ratings summary and ratings history on Big Lots (NYSE: BIG) click here. For more ratings news on Big Lots click here.

Shares of Big Lots closed at $31.81 yesterday.


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