These are the best of times for the gun manufacturers. Demand is so strong that Smith & Wesson Holding Corporation (SWHC) is trying to increase capacity. Shares of this Zacks #1 Rank (Strong Buy) are hot, recently hitting multi-year highs.
Smith & Wesson makes firearms and related products for the military, law enforcement and consumer markets worldwide. Headquartered in Springfield, MA, it operates facilities in Massachusetts and Maine.
The company’s brands include Smith & Wesson, M&P and Thompson/Center Arms.
Big Beat in the Fiscal Third Quarter of 2012
On Mar 8, Smith & Wesson reported fiscal third quarter results and blew by the Zacks Consensus by 100%. Earnings per share were 8 cents compared to the consensus of just 4 cents.
Sales jumped 23.8% to $98.1 million from $79.2 million a year ago. The increase was primarily due to strong sales of M&P handguns, M&P sporting rifles and all Smith & Wesson personal protection and concealed carry pistols.
Gross profit also rose to 30.6% of net sales from 24.5% of net sales in the third quarter of the previous year. Cost reduction initiatives helped with margins as well as increased sales volume and overhead absorption due to higher production levels.
The backlog soared 168.9% to $198.5 million from $124.7 million at the end of the third quarter last year. It also rose 32% quarter over quarter.
Fiscal 2012 and Fiscal 2013 Zacks Consensus Estimates Jump
In March, the company was bullish on the fourth quarter. It raised its net sales guidance to year over year growth from continuing operations of more than 15%, up from the prior forecast of 13% to 15%.
2 estimates were revised higher for the fiscal year in the last 30 days pushing the 2012 Zacks Consensus Estimate to 27 cents from 26 cents in that time.
That is earnings growth of 174% as Smith & Wesson made just 10 cents in fiscal 2011.
Presidential Election Boost?
But the analysts are already looking forward to fiscal 2013, which will cover the presidential election in November.
Some analysts are hypothesizing that gun sales are soaring on fears that if President Obama is re-elected, and is therefore a lame duck, he will move to enact restrictions on guns.
This could keep gun sales high for months.
In the last month, the fiscal 2013 Zacks Consensus Estimate has risen by 6 cents to 46 cents.
This is further earnings growth of 66.4%.
Valuations Not Cheap
Smith & Wesson isn’t a cheap stock. It trades with a forward P/E of 28.7. This is much higher than competitor Sturm Ruger (RGR) which trades at 19.4x.
But investors are paying for growth, which is definitely there.
For investors looking for a hot stock in the firearms sector, Smith & Wesson is it.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her on twitter at @TraceyRyniec.
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