On Monday, Telsey Advisory Group maintained a Market Perform rating for Big Lots (NYSE:BIG) stock with a steady price target of $5.00.
The firm's stance reflects a cautious outlook for the retailer due to persistent softness in consumer spending on discretionary items such as furniture and home goods. Placer.ai data indicates a worsening trend in store traffic during the first quarter of 2024, adding to the concerns.
Big Lots faces challenges from high operating costs, which are expected to continue impacting profits in the short term. However, some positive factors may mitigate these pressures, including reduced supply chain expenses, initiatives to cut costs, and favorable year-over-year comparisons.
Despite these efforts, Big Lots' core demographic, the lower to middle-income consumer, is experiencing increased financial strain, leading to reduced spending on non-essential items, which are key to Big Lots' product lineup.
The retailer's ongoing transformation strategy, encompassing improvements in merchandising, digital platforms, customer loyalty programs, margin optimization, and supply chain infrastructure, is noted by Telsey.
Yet, the difficult economic environment conceals some of the progress Big Lots has made in these areas. The $5.00 price target is derived from an enterprise value to sales (EV/Sales) multiple of approximately 0.11 times applied to projected 2025 sales of around $4.5 billion.
Telsey's analysis suggests a cautious approach to Big Lots' stock, advising to stay on the sidelines given the current economic backdrop and consumer behavior.
The company's strategic advancements are acknowledged, but the prevailing market conditions and consumer spending patterns pose significant headwinds to near-term performance. The firm's rating and price target remain unchanged as it monitors Big Lots' progress and the broader economic indicators.
InvestingPro Insights
In line with the cautious stance from Telsey Advisory Group, InvestingPro data and tips paint a challenging picture for Big Lots. With a market capitalization of $102.7 million, the company is trading at a low Price / Book multiple of 0.36, indicating that the stock may be undervalued relative to the company's book value. This could be of interest to value investors looking for potential bargains in the market. Additionally, the company's price has seen a significant drop of 36.03% over the last three months, aligning with the concerns about consumer spending habits affecting Big Lots.
Furthermore, two critical InvestingPro Tips highlight the financial hurdles ahead: Big Lots operates with a significant debt burden and may have trouble making interest payments on its debt. These factors are crucial for investors to consider when evaluating the company's financial health and future prospects. For those looking for a deeper dive into Big Lots' financials, InvestingPro offers additional tips and insights. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and discover the full suite of 13 InvestingPro Tips to aid in making a more informed investment decision.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.