Big_Lots1-300x225Event: Discount retailer Big Lots (NYSE: BIG) reported earnings for the quarter ending Oct. 31, 2012 on Tuesday before the market opened. Big Lots said that it lost 10 cents per share in the period. Analysts expected a loss of 24 cents per share. Revenues came in at $1.13 billion, slightly below the estimate of $1.12 billion. The company upped its guidance for its fiscal fourth quarter to in line with current analyst estimates. In addition to the financial reporting, Big Lots said its CEO will resign and that a search for a replacement will begin post haste. Shares of Big Lots are up more than 10% in trading on Tuesday after the news was released.

Analysis: Shares of Big Lots dropped 25% after the company reported earnings in August. The stock has struggled since. The surprise earnings beat this quarter took out the shorts in a big way. There is more meat on the bone given the current economic environment. Discount retail is still the place to be, given consumer budgetary constraints and lack of income growth. The loss of the CEO is a bit troubling as finding a replacement may be a distraction for the company. Ultimately, the play here is for the long term and based on valuation. The stock is fairly valued at current levels with shares trading for 11 times estimated earnings for the current fiscal year ending Jan. 31, 2013. Analysts expect profits to grow by 11% from the current fiscal year to the next.

Action: Retail stocks are showing weakness on Tuesday, but discount retail still represents decent value. I would be long Big Lots in 2013.


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