Big Lots, Inc (NYSE:BIG) – the largest broadline closeout retailer in the United States.
Current key statistics:
Market Cap – 1,78B
P/B – 2 (comparable to sector average)
Debt to equity – 1.2 (better than sector average or comparable if one company excluded from average)
-Nation-wide coverage (1300 stores in 47 states);
-Broadly diversified merchandise and vendors;
-In March 2007 Board of Directors authorized massive (30% of current M.Cap) share repurchase program (average share price for March 2007 was about 33% higher than current);
-Straightforward management strategy.
-No attempts to enter foreign markets;
-Revenue growth rate over last 7 years worse than those of competitors and prospective competitors;
-No intersectoral diversification;
-High stock price volatility
Stock target price evaluation:
1.Over the last 7 years average P/E ratio for non-dividend companies of comparable market cap within the industry was around 15.
2.As there appears to be no structural problem with the company and uncertainty related to its prospective earnings doesn’t appear extraordinary, average P/E can be applied;
3.In the nearest future company’s management, whose forecasts have over recent years proved their adequacy, expect no essential earnings deviation from those observed in 2006-2008, so I extrapolate average earnings for 2006-2008;
4.Considering all the above for me target price would be 26 (=Average EPS for 2006-2008 multiplied by average P/E of 15);
Disclosure: No positions