Buyout of Cabela's (CAB) on Track, Hold the Stock for Now

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With enhanced emphasis on cost saving, developing next-generation stores and merger agreement with Bass Pro Shops, Cabela's Incorporated CAB has been striving to deliver better top and bottom-line performances. The stock has lately been pressurized by lower store traffic, dismal comparable store sales and declining merchandise sales.

Cabela's posted first-quarter 2017 results, wherein earnings beat the Zacks Consensus Estimate, after missing the same for three straight quarters. However, both the top and bottom lines declined year over year, with the former marking its third consecutive miss.

Revenues were largely hurt by dismal store traffic and a sharp decline in merchandise sales. Comparable store sales (comps) were marred by persistent fall in transactions, somewhat mitigated by a rise in average ticket. 

In the first quarter of 2017, Merchandise gross margin contracted 80 basis points to 31.4% in the quarter, owing to intense promotional activity, sales discounts and unfavorable merchandise mix.

Nevertheless, Cabela's remains hopeful regarding the merger deal with Bass Pro Shops. The transaction is expected to conclude in third-quarter 2017. This deal will create a retail giant which will control over 20% of the U.S. hunting, camping and fishing market. As a result of the accepted buyout offer, shares of this Zacks Rank #3 (Hold) company have rallied 14.4% in the past three months, outperforming the Zacks categorized Retail-Miscellaneous/Diversified industry's  decline of 5%.

Further, Cabela's entered into a deal with subsidiaries of Synovus Financial Corp. and Capital One Financial Corporation for selling the assets and liabilities of the company's wholly owned bank subsidiary, World's Foremost Bank.

Key Picks

Investors may consider better-ranked stocks such as Best Buy Co., Inc. BBY , Burlington Stores, Inc. BURL and Ulta Beauty, Inc. ULTA , each of them carrying a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 (Strong Buy) Rank stocks here .

Best Buy had an average positive earnings surprise of 27.7% in the trailing four quarters and long-term earnings growth rate of 10.8%.

Burlington Stores had an average positive earnings surprise of 26.3% in the trailing four quarters and long-term earnings growth rate of 15.9%.

Ulta Beauty Stores had an average positive earnings surprise of 5.7% in the trailing four quarters and long-term earnings growth rate of 19.5%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: BBY , BURL , CAB , ULTA

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