Boutique Firm Upgrades Cabela's To Speculative Buy

Forward View’s Nathan Yates upgraded the rating on Cabelas Inc CAB from Hold to Buy, while raising the price target from $47 to $49.

The company reported its 4Q15 results on February 18, with a 10.5 percent year on year increase in total revenue and a 14.3 percent year on year increase in retail store revenue. The GAAP net income and EPS were marginally higher than the 4Q14 levels. Both the revenue and the EPS missed the consensus expectations.

Yates quoted CEO Thomas L. Millner as saying, “For full-year 2016, we expect a high-single-digit growth rate in revenue and a high-single-digit or low-double-digit growth rate in earnings per diluted share.”

While saying that there was “nothing in the 4Q15 earnings call makes us more excited about the company’s near-term business opportunities,” the analyst stated that there were two reasons for a bullish stance on the stock.

Firstly, there has been anecdotal evidence of a possible sale of the business, such as the company’s “sudden” focus on cost cutting and the Chairman’s decision to move all his stake in the company to a tax-free charitable trust.

Secondly, the “sheer lack of discussion of Cabela’s strategic review on the conference call is indicative of a management team trying to avoid any discussion of ongoing (and positive) sale negotiations,” the Forward View report said.

Yates believes that there could a 70 percent probability of Cabela’s being sold to a private equity firm at $55 per share.

“Overall, we think an acquisition is more likely now, and we suggest buying Cabela’s shares in anticipation of a deal,” Yates added.