Imperial Capital: Time To Buy Sportsman's Warehouse

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In a report published Wednesday, Imperial Capital analyst John O’Neil initiated coverage of Sportsman's Warehouse Holdings Inc SPWH with an Outperform rating and a price target of $14. The analyst expressed optimism regarding the company’s earnings growth citing comp acceleration, margin expansion and improving industry fundamentals.

Sportsman's Warehouse recorded sales of $672 million and EBITDA of $65 million for the 12 month period ended May 2, 2015.

“We believe the combination of accelerating comps and improving margins, coupled with external tailwinds and store expansion will enable SPWH shares to continue their upward trajectory. While comps have suffered from the industry decline following the “surge” and the result of competitive openings near some of their stores, we see both factors easing going forward,” analyst John O’Neil wrote.

In the report Imperial Capital noted five factors leading to improving comp-sales gains over the next few quarters, which should lead to accelerating earnings and improved valuation:

  1. The camping and fishing segments, which grew 6 percent and 12 percent in 1Q represents more than 30 percent of 2Q sales, versus about 20 percent of sales in 1Q.
  2. Number of stores facing competitive threats is expected to reduce by yearend, boosting comps.
  3. More recent stores in the comp base, and new stores typically higher growth in years two and three, before reaching maturity.
  4. Better apparel sales on account of improved execution, expanded space and easier comps due to normalized weather conditions.
  5. Normalization of demand as well as ASPs for firearms.

The EPS for 2015 and 2016 have been estimated at $3.23 and $3.68, respectively.

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Posted In: Analyst ColorInitiationAnalyst Ratingsimperial capital
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