After a couple of busy weeks on the earnings schedule, the pace calms down quite a bit next week. After weeks of 40 or more major reports, just 11 S&P 500 (SPX) companies report next week.
The one we like is Big Lots (BIG), which reports before the open on Wednesday, March 3.
Analysts expect a 28% profit increase year-over-year. That may sound optimistic, but BIG posted an 80% improvement last quarter. What’s impressive is that BIG hasn’t missed an earnings estimate in four years. That’s an enviable track record.
The most intriguing factor about Big Lots, though, is what is does after earnings. To put it simply, the stock moves — a lot. During the past four quarters, BIG has moved an average of more than 12% in just the one day following earnings. And three of those have been higher, averaging 14.6%. That kind of movement makes options players drool.
We also like BIG’s chart, which shows the stock breaking above resistance at the January peak around $31.40. In fact, the stock is currently trading at a 17-month high.
With no resistance overhead, the path for another post-earnings spike is clear.
Sentiment toward Big Lots is unremarkable and doesn’t figure in this analysis. Analysts generally favor the stock, while options players have lately shown a preference for puts. Short interest is fairly high, so a short squeeze is a possibility.
The main driver for this trade is history. Big Lots moves after earnings, and lately that direction has been higher. The company has a great track record for beating Wall Street projections. And the path higher on the chart has been cleared of obstacles.
With other deep discounters posting great numbers — Dollar Tree (DLTR) and Target (TGT) come to mind — BIG looks like a great call option play.
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