Cabela’s share price has become inflated since Elliott Management disclosed an 11% stake in the company last year, a report published in Barron’s this weekend stated, saying now might be a good time to sell shares of the company to lock in profits.
The report based some of its findings on a piece in the New York Post saying that private-equity investors are exploring a bid for the retailer, with rival Bass Pro Shops, working with Goldman Sachs Group’s private equity unit, expected to win a bidding contest. Speculation around these bids have pushed Cabela's stock too high, according to Barron's.
"Cabela’s was a growth-stock story that broke down as sales stalled along the trail to the company’s dream of creating 200 stores," the report read. "A sale to Bass Pro Shops may now be the best outcome for Elliott Associates which has 11% of the stock, and the founding Cabela family, which holds 23%."
As a retail deal, Bass Pro Shops is a common-sense suitor for Cabela’s: Both are known for their big, destination-like stores focusing on all things outdoors. Cabela’s stores feature taxidermy, shooting galleries, and other tourist attractions, amenities that can attract shoppers that might otherwise turn to e-commerce for their purchases. Bass Pro Shops in some stores runs wild game and fish restaurants, and both operate locations in the U.S. and Canada.
Cabela’s also runs a lucrative credit-card business, but, perhaps not as lucrative as its present stock price suggests, according to Barron’s.
Cabela’s sales have slumped as gun sales have fallen off. It is also scaling back expansion plans after discovering that its new superstores are taking sales from existing ones, with same-store sales falling 4.2% and profit dropping 19% in the most recent quarter.
Cabela's investor Elliott Management last year disclosed an 11% stake in the company and is said to have been urging a sale or other ways to unlock value in the beleaguered retailer, including a real estate sale or spin-off of its credit-card business.
The retailer's founding Cabela family still holds a 24% stake in the company, which could cause a kink in Elliott's reported plans for a sale if their opinions do not match with the firm's. Bass Pro Shops' work with Goldman, however, likely gives it the financing it needs to pursue an acquisition of Cabela's and the efficiencies and synergies that would bring.
But, as Barron's points out, the deals coming out of any such bids for Cabela's or its parts could be less than what investors are now ponying up for its shares.
"Shareholders should seriously consider taking profits at recent price levels," Barron's said. "Our analysis suggests that any offer isn’t likely to come at much of a premium and that Cabela’s—whether alone or in tandem—still faces many challenges."