Cabela's: Ready to Hit a Bull's Eye by Jim McTague
Summary: Aside from banking, media, travel and real estate brokerage businesses, Cabela (CAB) principally sells outdoor sports equipment online and through mega-retail stores. For 87 million potential American clients who spent $120 billion on outdoor activities last year, Cabela's 35,000-250,000-sf shopping/entertainment stores are tourist meccas which generate revenues for local services. Governments woo Cabela stores with generous tax breaks, helping Cabela realize a 30% return on the $45m-$70 million it invests in each store. Store sales have grown a compound 26% annually since 2001, comprising 40% of overall earnings. Each generates average sales of $348/sf, vs. rival Dick's Sporting Goods' (DKS) $197/sf. Cabela trades at 13x 2008 P/E estimates of $1.74/share, or 0.71x 2006 sales of $2b, at a $1.4b market cap. Profits rose 18% in 2006 to $185.8m or $1.29/share, with $1.50/share (+15%) projected for 2007. Cabela's shares are down 20% at $22.50 since early August, reflecting investors fear that its bank credit card defaults will rise. The bank generated 17% of 2006's earnings. Cabela's leveraged expansion plans means this year's $215m bond offering will raise its debt-to-capital ratio to the +40% range from 35% now. But Cabela assures of growth and loans to customers only with high credit scores. Barron's says CAB shares could rise over $30 in 2008.
CAB 1-yr. chart: