An epic hero is a larger than life character who has legendary skill and prowess. A perfect example of an epic hero is of course Beowulf himself, who even before he arrives at Heorot has already built for himself a tremendous reputation that goes before him and is based on acts that no mere mortal could accomplish or achieve. Note for example how he gives an account of his exploits when he reaches Hereot:
They had seen me boltered in the blood of enemies
when I battled and bound five beasts,
raided a troll-nest and in the right-sea
slaughtered sea-brutes. I have suffered extremes
and avenges the Geats (their enemies brought it
upon themselves I devastated them).
This list of his heroic exploits confirms Beowulf's status as an epic hero, and therefore as a man who should be more than a match for Grendel himself. Perhaps one of the key aspects to note is that Beowulf already has his character formed and developed. He arrives at Heorot as a fully formed character, and very little else changes that in terms of his physical strength and heroic qualities. This is certainly not the case for Bilbo Baggins.
Bilbo, by contrast, starts the novel as a quiet, peaceful and unadventurous hobbit who sometimes goes through periods where he wonders what on earth he is doing on this adventure with dwarves and a wizard. It is clear from his early attempts to sneak up on enemies, such as with the trolls, that he has a lot to learn, and his early failures show that he is much more of a dynamic character than Beowulf is in the way that he learns heroism and courage and refines his skills as time goes by. As the adventure continues, and Bilbo shows his worth and value first in the Misty Mountains and then secondly with the Elves and then finally the spiders, Bilbo becomes a hero in his own right. Finally, his heroic status is secured when he delivers the Arkenstone of Thrain to the Elvenking and Bard in order to secure a peace between the dwarves and the elves and humans. Note what the Elvenking says to Bilbo when he does this:
You are more worthy to wear the armour of elf-princes than many that have looked more comely in it.
For this act of selfless generosity, where Bilbo wllingly forefeits his own claim to the treasure in order to secure peace, Bilbo shows himself to not just be a hero in terms of his skills and qualities, but a hero in his character as well, which is something arguably that Beowulf does not show, as he seems to risk his own life against the dragon knowing that his death would be disastrous for his own people.
When comparing Beowulf and Bilbo, therefore, it is clear that Beowulf is an archetypal epic hero, but Bilbo is much more of a hero in some ways, as he displays significant courage both physically and in terms of his character. He could not be described as an epic hero because his strength is not larger than life, but he certainly demonstrates heroic qualities.