Stock Buy: Big Lots

Big Lots, Inc. (BIG: 31.08 +0.08 +0.26%) reported a strong fiscal third-quarter performance on Dec 4, and the closeout retailer looks poised for more of the same when it announces its fiscal fourth-quarter numbers on Mar 3.

Earlier this month, BIG reported a strong same-store sales increase for the quarter; it was the company’s largest same-store sales advance for that period in 10 years.

The company enjoys a solid string of better-than-expected quarterly profit performances, rising earnings estimates and solid value fundamentals. It has a price-to-book of 2.86 and a forward P/E of 11.85.

Big Lots is the nation’s largest broadline closeout retailer, operating more than 1,360 Big Lots stores in 47 states. We have a long-term recommendation on BIG of “Outperform”, as its closeout format offers an edge over traditional discount retailers at this time. We also believe that its focus on closing underperforming stores, reducing operating expenses and improving merchandise content are good steps.

Sales Jump in the Fiscal Fourth Quarter

On Feb 4, Big Lots announced that comparable store sales for stores open at least 2 years increased 5.1% in the fiscal fourth quarter, which was much better than the company’s guidance. Business outperformed in the last 3 weeks of January due to strong results from its mid-January ad circular event, strong response to its Buzz Club/Buzz Club Rewards promotion and better weather.

Retail sales in general advanced 6.9% to $1.45 billion.

At the moment, the Zacks Consensus Estimate for the fiscal fourth quarter is EPS of $1.27, compared to the year-ago result of $1.

Estimates Heading Higher for Big Lots

There has been an upward trajectory to Big Lots’ earnings estimates for a while now. Presently, the Zacks Consensus Estimate for the year ended in January is $2.31 per share, which is up 5.5% in the past 2 months and 1.3% in the past 30 days. There have been 7 upward revisions out of 12 estimates in a month.

Meanwhile, the Zacks Consensus Estimate for the current fiscal year, ending January 2011, is at $2.58 per share. This leaves open the possibility for year-over-year profit growth of nearly 12%. With 8 analysts out of 12 revising higher in the past month, this outlook has improved by 2% in that time. Looking a little bit further back, it has gained 7% in 2 months.

Supporting these upward revisions is a very impressive streak of quarterly EPS performances. Big Lots has now beaten for 4 consecutive quarters, putting together an average surprise of nearly 20%. In fact, it hasn’t missed in more than 3 years.