(By Michael Vodicka)With summer finally upon us on and many families across the country getting ready to hit the roads for vacation, it's a good time to profile a company that sells outdoor and camping supplies. There are a few popular names in the space, with Dicks Sporting Goods, Inc. (DKS), Hibbett Sports, Inc. (HIBB) and even Wal-Mart Stores, Inc. (WMT) coming to mind.
While all three of these stocks have posted market-beating gains in 2012, my favorite is up 45% on the year and 140% over the last two years. But with new store openings in the pipeline and a compelling valuation built upon rising estimates, shares look well positioned for even more upside.
The company I am talking about is Cabela's, Inc. (CAB), a specialty and direct marketer of hunting, fishing, camping and other outdoor related merchandise. With a total store count of 36 and market cap of $2.5 billion, this is a mid-size company in its industry but quite small in the lexicon of the S&P 500.
Cabela's has been having a great year. The company's share price is up more than 44% on the year, driven by strong Q1 results from late April included a 62% increase in net income and a 21% earnings surprise, lifting its average earnings surprise to 15% over the last four quarters.
On the chart, Cabela's pulled back with the market in May, but on the year, shares are up a whopping 44% after spiking on strong Q4 results from mid-February. But even though shares have been on a bit of a tear, there are still more than a few reasons to be bullish on the company.
The first is a simple matter of the company growing its store count and driving sales. On the year, the company has already opened two new stores, which might not seem like a lot, but pushing its store count from 34 to 36 is a 6% increase in just six months. Looking forward, the company has two more store openings planned in 2013 for the very lucrative Denver market and additional plans to open next-generation stores in Louisville, Kentucky, Columbus, Ohio and Grandville, Michigan. Overall, Cabela's is on pace to grow retail square footage by 10% in 2012 and 13% in 2013.
But Cabela's isn't a company like Groupon, Inc. (GRPN) that is sacrificing margin strength to grow the top line. In fact, Cabela's attention to expenses and inventory has enabled it to increase operational efficiencies, with total operating expenses falling in its most recent quarter.
In regard to threats, the company's Direct segment, where it sells its products direct to consumers through online and catalog channels, showed signed of weakness during the most recent quarter, with sales down 8% to $190 million. Representing 30% of the company's total revenue, this is an important channel for Cabela's
Estimates and Valuation
With Cabela's aggressively expanding and growing its margin profile, estimates have been on the upswing. In the last 60 days, the full-year 2012 estimate is up 5% to $2.62, which would be a healthy 24% increase from last year. The full-year 2013 estimate is up 4% in the same time to $2.98, a 14% growth projection.
That bullish movement in estimates combined with shares pulling back with the market in May has pushed valuations below historical averages. Cabela's PEG multiple of .87X is a discount to the 8-year median of .94X and much closer to the low print of .42X than the high of 1.68X.
On the chart, Cabela's is having a great year, currently up more than 44% for a solid outperformance of the S&P 500. Most of those gains came in mid-February when shares spiked into a new all-time high on strong Q4 results and guidance. More recently, shares have pulled back with the market, which has helped sweeten the valuation picture below historical averages. Look for support from the trend and the short-term low between $33 and $34 on any signs of weakness. Take a look below.
Cabela's, Inc. (CAB) Daily Chart 2012