Imperial Capital Bullish On Big 5: Hits With Outperform Rating, $17 Target

In a report published Thursday, Imperial Capital analyst John O'Neil initiated coverage of Big 5 Sporting Goods Corporation (NASDAQ: BGFV) with an Outperform rating and a price target of $17.

Big 5 Sporting is a leading retailer of sporting and outdoor products. The company generated revenues of $990 million and EBITDA of $51 million in the year ended March 2015.

"BGFV sales growth underperformed in 2014 as it faced headwinds in the hunting segment and adverse weather that caused a sales miss in 4Q, yet we believe these negatives should become tailwinds in 2015 and provide momentum for improving comps," analyst John O'Neil mentioned.

O'Neil expects Big 5 Sporting's margins in the current year to be boosted by focus on improved product assortments and increased prices in apparel and footwear, along with improving comp sales trends.

In the report Imperial Capital noted, "BGFV generated operating margins of 6-8% before the recession, compared to only 2.8% last year, and operating leverage from sales from company initiatives and the reviving California economy should help restore operating margins over the next few years."

O'Neil said that Big 5 Sporting had the infrastructure and financial flexibility to take on new opportunities and drive results. Apart from this, the presence of an activist investor and independent new board members could boost the company's operational performance. "These factors combined with a discounted valuation lead to a favorable risk/reward outlook for BGFV shares, in our view," the report added.