Big gains for Big Lots

Big Lots is emerging from the recession a clear winner as it blasted by analyst estimates Friday morning.

By James Dlugosch Dec 4, 2009 1:32PM

Jamie DlugoschThe recession may be ending, but don't expect consumers to change their behavior any time soon. That means less spending and a thirst for deals and discounts.

 

Need proof? Check out the earnings report from discount retailer, Big Lots. The company blasted by analyst estimates for the period ending Oct. 31 on strong sales, real estate gains (not a typo) and lower freight expenses.

 

Excluding the gain on a real estate sale, Big Lots earned 27 cents per share versus an expectation of 15 cents. In addition, the company upped its guidance for the fourth quarter to $1.09-$1.14 from prior guidance of $0.99-$1.04.

 

Investors are cheering the news and sending shares of Big Lots (BIG) up more than 15% today. Considering that the stock was already up more than 60% this year, this move is no small feat.

 

 

In an article I wrote at the end of last year, I suggested that BIG was a buy given its positioning during a severe recession. I can honestly say I had no idea the company would perform this well.

 

In fact, nobody could have predicted these results, hence the huge gains in the stock. If investors knew what was coming, shares would have been bid up substantially, thereby reducing the gains that have come today.

 

Now those that own the stock can sit back and happily watch it soar.

 

In today's report, the company announced that it would be immediately buying back its own stock to the tune of $150 million. That's a big chunk of change for a company valued at $2.25 billion.

 

Clearly the company believes that shares are undervalued, and I would have to agree with that assessment.

 

The beauty of emerging from a recession is the power of earnings and the difficulty Wall Street has in predicting future results. While some criticize the beat-the-number mentality of the market, the fact is that beating the number usually justifies and inures a higher stock price.

 

Investors have done very well by investing in those companies that had the potential to perform well during a recession. Big Lots is a prime example.

 

Next year, investors will do well by owning the companies that trade for valuations below earnings growth rates. Think of the economy like the slingshot effect of planetary orbits.

 

Companies are doing much better than Wall Street expects. As a result, shares of companies that beat the number will do quite well in 2010.

 

At the time of this writing, Jamie Dlugosch did not own shares of BIG in personal or client portfolios.

 

Related Articles:

1Comment
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

111
111 rated 1
272
272 rated 2
474
474 rated 3
656
656 rated 4
638
638 rated 5
699
699 rated 6
623
623 rated 7
486
486 rated 8
260
260 rated 9
128
128 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
DYNDYNEGY Inc10
TAT&T Inc9
VZVERIZON COMMUNICATIONS9
EXCEXELON CORPORATION8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.