Big Lots (BIG) Could Give Up Ground After Downgrade

Big Lots, Inc. (BIG) shares fell 5% during Thursday’s session after Loop Capital downgraded the stock to Hold with a $60 target price.

Key points to remember

  • Shares of Big Lots fell on Thursday after Loop Capital downgraded the stock to Hold with a price target of $60.
  • Analyst Anthony Chukumba quoted the action Evaluation for the downgrade and recommended investors consider Dollar General Corporation (CEO) in place.
  • The Big Lots stock has moved off its highs reached earlier this week, but the relative strength index (RSI) always indicates overbought conditions, and more consolidation could be in front.

Loop Capital analyst Anthony Chukumba cited the stock’s valuation, rather than a bearish fundamental outlook, for the downgrade. The analyst also urged investors to shift positions to Dollar General, which he said will benefit from a more predictable business model and a longer square foot future growth track.

Shares of Big Lots rose sharply on Wednesday after an acceleration in retail spending in January. Gordon Haskett analyst Chuck Grom believes the 2020 holiday season could be one of the best of the past decade, with several retailers already posting strong comparable store sales growth for the month.

Point

Comparable store sales statistics provide a comparison of the performance of established stores of a retail chain over a given period, such as a fiscal year or fiscal quarter or a calendar year or quarter, by comparing current period revenue to the same period in the past – for example, comparing Q1 2016 revenue to Q1 2015 revenue.

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From a technical standpoint, Big Lots stock has moved away from its highs reached in Wednesday’s session. The RSI remains in overbought territory with a reading of 71.35, but the moving average convergence divergence (MACD) remains in an uptrend. These indicators suggest that the stock may see some consolidation in the short term, but the long-term picture remains bullish.

Traders should watch for consolidation between the highs around $65.11 and the trendline Support at $54.00 over the next few sessions. If the stock breaks down, traders could see a move towards trendline support and the 200-day moving average at around $42.26. If the stock breaks out, traders could see a move towards the trendline resistance at around $74.00, although a move that high seems less likely given the extended valuation.

The essential

Shares of Big Lots fell sharply during Thursday’s session after Loop Capital downgraded the stock to Hold with a price target of $60. With an overbought RSI and a bullish MACD, the stock could experience some consolidation above trendline support levels before resuming its mid- to long-term advance.

The author does not hold any positions in the stocks mentioned, except through passively managed index funds.

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