Cabela's (NYSE:CAB) Looks Strong on Firearm, Ammunition Trends

Buying trends for firearms and ammunition remain strong in this period of uncertainty, and Cabela's (NYSE:CAB) has been a major beneficiary of that, with margins also improving in the category.

Canaccord says, "Piper Jaffray upgraded the sporting goods retailer, citing favourable firearm and ammunition trends, improving credit card profitability, and better merchandise margins. Cabela's sells equipment and apparel for outdoor activities like hunting and fishing and also offers customers credit cards and related loyalty rewards programs. Piper Jaffrey thinks that a continued improvement in firearm sales will benefit Cabela's, as hunting equipment accounts for 43% of the company's total retail sales. Moreover, Jeffries & Co. thinks that credit card trends will be increasingly positive in the periods ahead. In November, the company lowered charge-offs to a range of 4.25-4.50% from 5.00-5.50% earlier. As a result of this change, Jefferies thinks that earnings for the year will increase by six cents for every 25 basis points of net charge-off. Finally, Jefferies expects Cabela’s to improve its overall margins, with the biggest improvement likely to occur in the first and third quarters. Investors took heart in Piper’s upgrade, which followed positive announcements from the company a week earlier. On January 19, Cabela’s announced it would open a new retail store in Kansas. The company said construction should begin this summer on the 80,000-square-foot store in a northeast Wichita shopping center that is already home to a Target (TGT). Cabela's said the new store will resemble its existing ones from the outside with log construction and metal roofing. But the store will use an updated layout and large glass display windows when it opens in spring 2012."

Cabela's closed Tuesday at $23.77, down $0.02, or 0.08 percent.