Leading firearm manufacturer, Smith & Wesson Holding Corporation SWHC approved a buyback of up to $50 million worth of shares that will remain active through Jun 23, 2017. Although its share price ended in the red yesterday, it jumped 1.7% in after-hours trading. Notably, the stock has soared 76.5% year to date.
The company’s buyback announcement assures shareholders that all is well with the company. Smith & Wesson is a leading firearm manufacturer and designer, delivering a broad portfolio of quality firearms, related products and training to the global military, law enforcement and consumer markets. Moreover, the company’s online retail segment sells firearms accessories, branded products, apparel and related shooting supplies.
We however note that Smith & Wesson has been posting declining sales for the past few quarters. The company has particularly witnessed a significant fall in its sales of long guns, including modern sporting rifles.
In the last reported quarter, Smith & Wesson witnessed moderate purchase activity following last year’s demand surge in firearm purchases. Nevertheless, the firearm division reflected impressive orders from distributors and key retailers.
The Battenfeld Technologies acquisition that the company completed last year had a positive impact on its financials. Battenfeld is a leading provider of hunting and shooting accessories and Smith & Wesson is expected to gain considerable traction from this takeover, particularly in the firearm accessories market and the hunting vertical as well. Revenues increased 6.2% year over year despite a 2.4% fall in Firearm revenues in the fourth quarter fiscal 2015, thanks to contributions from the company’s new Accessories division.
Battenfeld boasts a solid distribution network and is renowned for producing high-quality products. Smith & Wesson will likely witness a boost in its sales as it leverages Battenfeld’s potential.
Despite reporting weak sales in the last few quarters, Smith & Wesson has surpassed our earnings estimates for the last 15 quarters. Management has also shared the benefits with its shareholders through systematic buybacks. Its operating cash flow was $114.8 million in fiscal 2015, up 27.3% from $90.2 million in the prior fiscal.
The present valuation also looks attractive as Smith & Wesson is trading at a forward P/E of 16.3x, a 36.5% discount to the peer group average of 25.68x. Return on Equity of the company is 33%, substantially higher than the peer group average of 7.5%.
Smith & Wesson carries a Zacks Rank #3 (Hold). Some better-ranked stocks worth buying now include Black Diamond, Inc. BDE, Callaway Golf Co. ELY and Sturm, Ruger & Company Inc. RGR. While Black Diamond and Callaway sport a Zacks Rank #1 (Strong Buy), Sturm, Ruger & Company carries a Zacks Rank #2 (Buy).
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