D.A. Davidson: Buy These Sporting Firearm Stocks Into Hunting Season

• Cabelas Inc (NYSE: CAB), down 14 percent, and Sportsman's Warehouse Holdings Inc (NASDAQ: SPWH), up 84 percent, have diverged in performance this year.
• D.A. Davidson analyst Andrew Burns said that both stocks are Buy rated, with potential gains of 8 percent for Sportsman's Warehouse and more than 30 percent for Cabelas.
• Burns based his opinion on strong National Instant Criminal Background Check System (NICS) data that showed a year-over-year increase in firearms background checks in August.

According to NICS data, firearms background checks were up 4.3 percent year-over-year in August, down from a 15.9 percent increase in July and a 10.1 percent increase in June. However, this was the second-highest August on record.

Andrew Burns at D.A. Davidson pointed to this data as he reaffirmed a Buy rating on both Cabela's and Sportsman's Warehouse in a new research note. Heading into hunting season, Burns took these numbers as signs that demand in "firearms and ammunition" will be strong for both companies.

Burns also said that investors should look at store openings and announcements as indications that the companies are doing well. In August, Sportsman's Warehouse opened one store and announced three additional, while Cabela's didn't open or announce any new stores. As these companies expand, Burns noted that "new competitive entrants" into their existing markets would be a "manageable headwind."

Specifically, on Cabela's, D.A. Davidson argued that the shares should appreciate at "earnings growth reaccelerates." For Sportsman's Warehouse, he assigned a premium valuation, justified by the firm's growth prospects.