Gun Sales Could Drive Upside For Cabelas

MKM Partners said strong gun/ammunition sales following the nightclub shooting in Orlando should aid Cabelas Inc (NYSE: CAB)'s second-quarter results, which come amid M&A speculations.

Cabela's, which is a specialty retailer and a direct marketer of hunting, fishing, camping and related outdoor merchandise, is expected to announce its second quarter numbers on July 28. Wall Street expects earnings of $0.61 a share on revenue of $905.59 million.

Rating, Expectations And Justification

MKM Partners, which has a Buy rating on the stock, expects EPS of $0.61 on revenue of $902.8 million.

For the second quarter, MKM continues to model a 2.0 percent drop in comp after the first quarter's 4.3 percent decline. The Street's comp estimate is (1.6 percent).

"We believe firearms and powersports continued to be the strongest areas of the store, while apparel was likely the weakest. We note that adjusted NICS increased nearly 15 percent y/y in the quarter and were particularly strong in June (up 29 percent)," analyst Patrick McKeever wrote in a note.

Related Link: Cabelas Shares Higher Amid Expected Purchase by Goldman/Bass Pro Shops, But Some Traders Skeptical Of Further Upside

McKeever projects gross margin of 35.3 percent, down 60 bps year-over-year, while he expects cost cuts should continue to benefit margins/EPS. Cabela's continues to benefit from initiatives aimed at up to 150 bps of cost savings by late FY18.

The quarterly results come at a time when media reports continue to point to Bass Pro as most likely buyer for Cabela's, which announced a strategic review in early December.

"We continue to think our $56 price target could be conservative if Cabela's was acquired, though we also think a mid-$60 take-out valuation," McKeever noted.

Shares of Cabela's closed Friday's regular trading session at $53.95, and were seen trading up 0.63 percent at $54.29 within the first hour of Monday's regular trading session.

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