Big Lots Vs. Ollie's Bargain Outlet: Which Stock Is A Better Deal?

The U.S. retail industry had been hammered in 2017, with the SPDR S&P Retail (ETF) XRT down 6.7 percent year to date. However, a handful of discount retailers have offered investors a safe haven from the carnage, and Morgan Stanley analyst Vincent Sinisi has taken the opportunity to upgrade both Big Lots, Inc. BIG and Ollie’s Bargain Outlet Holdings Inc OLLI.

On Monday morning, Sinsi said Ollie’s and Big Lots are particularly well-positioned in a difficult retail environment.

“We believe the deep discount, ‘treasure hunt’ shopping experience is less likely to be disintermediated by online operators than other areas of retail, and we believe this channel is well-positioned with consumers’ continued shift to value offerings,” Sinisi wrote.

Morgan Stanley has upgraded Big Lots to an Overweight rating and has a $58 price target for the stock. Sinisi said investors seem to be under-appreciating Big Lots’ expanding margins, capital return and focus on ownable furniture and seasonal categories. Sinisi said Big Lots’ buybacks and dividend payments amount to 10 percent of the company’s entire market cap, the most aggressive capital return program of any stock Morgan Stanley covers. Sinisi said the stock’s depressed valuation provides support as well.

For Ollie’s, the stock’s 58.8 percent year-to-date gain limits near-term upside, but Morgan Stanley has upgraded the stock to Equal-weight with a $46 price target. According to Sinisi, Ollie’s has major long-term growth potential, but the stocks big run-up has balanced the risk and reward in the near term.

Morgan Stanley names Big Lots and Overweight-rated Dollar General Corp. DG as is top two dollar store stock picks.

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