Cabelas Inc (CAB), Foot Locker, Inc. (FL): What Sporting Retailer Is a Good Buy Now?

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Shareholders of Cabelas Inc (NYSE:CAB) must be quite happy, as its stock has lately experienced a great gain, from around $5.70 per share in March 2009 to nearly $68.20 per share at the time of writing.

Cabelas Inc (NYSE:CAB)

Since the beginning of the year, Cabelas Inc (NYSE:CAB) has gained 63.30%, much more than the S&P 500’s return of only 17.80%. Billionaire Ken Fisher and Vanguard Group are the two big shareholders of Cabelas Inc (NYSE:CAB), owning more than 2 million and 2.5 million shares, respectively, of the company. Should we invest in Cabelas Inc (NYSE:CAB) at its current price?

Let’s find out.

A cash cow with consistent growth in both revenue and net income

Cabelas Inc (NYSE:CAB), founded in 1961, is considered the leader in specialty retailing and direct marketing of fishing, hunting and camping outdoor merchandise, operating 37 stores in 24 states in three stores in Canada. The majority of its sales, $1.85 billion, or 66.5% of the total revenue, were generated from its Retail segment while the Direct segment contributed nearly $931 million in 2012 sales. The operating margin of the Retail segment came in at 18.7%, with $345 million in operating income while the Direct segment’s margin was a bit lower, at 16.7%, with $155.24 million in operating profits.

In the past four years, Cabelas Inc (NYSE:CAB) generated consistent growth in its top line and bottom line. Revenue increased from $2.63 billion in 2009 to $3.11 billion in 2012 while the net income rose from $50 million to $174 million during the same period. The company is also producing consistent positive operating cash flow and free cash flow since 2009. In 2012, operating cash flow came in at $364 million and the free cash flow was $124 million.

However, what makes me worry is its high leverage employed in the company’s operations. As of March 2013, it had $1.43 billion in equity, $364 million in cash and nearly $2.48 billion in long-term debt.

Are Dick’s and Foot Locker, Inc. (NYSE:FL) better buys?

Cabela’s is trading at $68.20 per share, with a total market cap of more than $4.8 billion. The market now values Cabela’s quite highly, at 17.55 times its trailing Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) .

Compared to its peers including Dicks Sporting Goods Inc (NYSE:DKS) and Foot Locker, Inc. (NYSE:FL), Cabela’s has the highest valuation among the three. Dicks Sporting Goods Inc (NYSE:DKS) is trading at $50.70 per share, with the total market cap of around $6.4 billion.

The market values Dicks Sporting Goods Inc (NYSE:DKS) at 9.52 times its trailing EBITDA. Dicks Sporting Goods Inc (NYSE:DKS) mission is to become the number one specialty omni-channel retailer in sports and fitness. It is considered the biggest full-line sporting retailer in the U.S., with 8.5%  of the U.S. market. For the full year 2013, Dicks Sporting Goods Inc (NYSE:DKS) expected to grow its comparable store sales by 2% – 3%, opening around 40 new Dicks Sporting Goods Inc (NYSE:DKS) stores. The non-GAAP diluted EPS was estimated to come in at $2.84 to $2.86 per share.

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