The BIG FIVE: Loop Capital Sees 2 Discount Retailers Standing Above The Rest

Loop Capital’s Anthony Chukumba has started coverage of four discount retailers and is bullish on Big Lots, Inc. (NYSE: BIG) and Five Below Inc (NASDAQ: FIVE).

Top 2

Chukumba initiated coverage of Big Lots with a Buy rating and $64 price target, which implies 24 percent upside from December 6 close. The analyst is bullish on Big Lots given improved returns from merchandising overhaul, while expecting robust furniture sales for the foreseeable future.

“Given Big Lots’ impressive recent track record and long runway of comparable store sales gains and operating margin expansion, we believe the company should trade more in line with the dollar stores,” Chukumba wrote in a note.

Chukumba is also upbeat on Five Below, for which he set a Buy rating and $54 price target, which implies 28 percent upside from current levels. The analyst noted that Five Below offers a unique and differentiated concept and a compelling value proposition, with shares trading at a compelling valuation.

“We believe the most exciting aspect of the Five Below story is the company’s extensive organic square footage growth runway, which differentiates it from most publicly traded retailers. We think Five Below should be able to maintain its 20 percent annual square footage growth target for the foreseeable future,” Chukumba highlighted.

Sidelined Initiations

Meanwhile, the analyst prefers to be on the sidelines on Dollar Tree, Inc. (NASDAQ: DLTR) and Dollar General Corp. (NYSE: DG) as he launched coverage of both stocks with a Hold rating, with target prices of $91 and $76, respectively.

For Dollar Tree, though the analyst is positive on the company’s unique core concept, he feels early results from Family Dollar integration is “underwhelming.”

Chukumba is also concerned that the dramatic slowdown in Family Dollar new store openings could place the chain at a significant future competitive disadvantage.

For Dollar General, Chukumba said his enthusiasm is tempered by slowing same-store sales and the prospect of increased competition from Wal-Mart Stores, Inc. (NYSE: WMT) and Family Dollar, despite being excited about near-term market share gain opportunities.

“We expect Dollar General’s top-line growth to continue to be fairly anemic in F2017,” Chukumba added.

At Last Check

• Big Lots shares were up 0.41 percent at $54.09.
• Dollar General was up 1.36 percent at $76.72.
• Dollar Tree shares were down 0.11 percent at $87.83.
• Five Below was up 1.58 percent at $43.80.
• Wal-Mart shares were down 0.17 percent at $70.24.

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