Benchmark Capital said the sale of retailer Big Lots (NYSE: BIG) appears possible and private equity buyers could target the company, after Bloomberg reported that Big Lots is exploring strategic options, including a possible sale, and is working with Goldman Sachs Group Inc.

While we do not have any reason to believe that any company or group is targeting Big Lots, we do find it plausible. We believe that if Big Lots is targeted, it would be by private equity, analyst Ronald Bookbinder wrote in a note to clients.

Interested parties could include Leonard Green & Partners, Bain Capital, and TPG Capital, said Bookbinder who raised the stock's price target to $49 from $40.

The analyst said private equity tends to prefer basic retailers, with strong cash flow, at a reasonable multiple, as the cash flow can help service debt needed to take an acquisition private.

Big lots had positive free cash flow of approximately $248 million, $122 million, and $313 million in the years 2007, 2008, and 2009 respectively. The analyst expects the company to generate free cash flow of about $200 million or $2.65 per share, for 2010.

In addition, Big Lots trades at a reasonable multiple compared to other general merchandise/consumable focused retailers.

We believe in a takeout, Big Lots could warrant a price equivalent to 8 times 2011 earnings before interest depreciation and amortization, or a share price of $49, Bookbinder said.

Also, CEO Steve Fishman has a history of cleaning up business operations in advance of a change in ownership.

Fishman led the rebirth, followed by the sale of the retail chain Pamida, as chairman and chief executive officer. Pamida was formerly a publicly held retailer and is now a subsidiary of ShopKo Stores. Steve was also responsible for the strategic repositioning of Frank's Nursery & Crafts during its bankruptcy and led it through its public offering.

Fishman was also President/CEO, and chief restructuring officer of Rhodes Furniture, which became part of Rooms To Go very shortly after Fishman left to join Big Lots.

Founded in 1967, Columbus, Ohio-based Big Lots is the nation's largest broadline closeout retailer, with about 1,400 stores. Big Lots gets sells everyday consumables, which accounts for 30 percent of its total revenues, and basic merchandise such as furniture, toys, small appliances, and seasonal items.

Big Lots is expected to report its fourth-quarter results on March 3. Wall Street expects the company to earn $1.38 a share on revenue of $1.51 billion, according to analysts polled by Thomson Reuters.

Shares of Big Lots closed Monday's regular trading session at $39.20 on the NYSE.