Sturm Ruger & Co. Inc. – Momentum (RGR)

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Sturm
Ruger & Co Inc. (RGR)

Being a Texan, I can appreciate a dependable,
durable and quality gun; fortunately for Sturm Ruger & Co,
Texans aren’t the
only ones who share that sentiment. In
fact, RGR had to stop taking new orders earlier in the year just to
catch up on
the demand that had been building for months.

Just last month RGR announced
that it had received orders for more than 1 million units in the first
quarter
alone, the company noted that “despite efforts to increase
production
rates, the incoming order rate exceeds our capacity to rapidly fulfill
these
orders.” I’d say that’s a good problem
to have…

Many gun manufacturers have enjoyed similar demand even
through the
recession and beyond. Smith &
Wesson, Sturm Ruger and other have seen demand growing almost
constantly since
2008, sparked by economic uncertainty and worries that Barack Obama
might seek
to reduce gun rights in America. I
remember hearing a talk roughly a year ago where the speaker told the
audience
to “buy puts and bullets.” (Put
options are a bet that stocks will move lower)

Maybe the masses are heeding that advice and also purchasing
firearms to put
the bullets into.

Company
Description & Developments
Sturm, Ruger & Co., Inc. opened for business back in 1949 with
only $50,000
in financing. The company is principally engaged in
the
design, manufacture, and sale of firearms and precision metal
investment
castings. They are the only U.S. firearms manufacturer which offers
products in
all four industry categories.

Firearms produced include single-shot, auto-loading,
bolt-action, lever
action, and muzzle-loading rifles in a range of hunting calibers and
shotguns
in three gauges, they also manufacture .22 caliber rimfire auto-loading
pistols
and centerfire semi-automatic pistols in various calibers; single and
double-action, and muzzleloading revolvers.

RGR has beat the Zacks Consensus Estimate in seven of the last
seven
quarters; even more impressive is the fact that the strength and
magnitude of
those earnings are increasing (on average) along the way.
They also throw off a dividend yield of over
1.5%

Financial Profile
RGR is a small-cap (1.06 billion) company that is trading at about 20
times forward
expectations for next quarter) earnings. RGR became a Zacks
Rank 1 Strong Buy
on January 14th after their strong Q4 results.

Sturm
Ruger’s earnings nearly
doubled from the first quarter of 2011, driven by the 49% growth in
sales and continuing
improvement in operations and costs.

They
also rolled out several new
models, which were a significant contributor to sales growth as new
product
sales represented $40.8 million or 37% of sales in Q1 2012.

New
product introductions in the
first quarter of 2012 included:

• Ruger American Rifle
• SR22 pistol
• 10/22 Take Down rifle

Earnings Estimates
For Q1 2012, the Company reported
net sales of $112.3 million and fully diluted earnings of 79 cents per
share,
compared with sales of $75.4 million and fully diluted earnings of 42
cents per
share in the first quarter of 2011. Zacks consensus Estimates were for
68 cents
per share.

Of
the 3 analysts who cover RGR, the
consensus is for the company to grow earnings by 30% in the current
year (FY2012)
and roughly 6% in FY2013. RGR is
expected to earn $2.70 in FY2012 according to the Zacks Consensus
Estimate.

In terms of the magnitude of analyst estimate trends, we are
seeing all of
the consensus estimates higher than they were just 30 days ago for the
current
and next quarters as well as FY2012 and FY2013.

Market Performance &
Technicals
RGR’s 52 week performance has been stellar.
After consolidating for several months around the $15-$16 level in late
2010, early 2011, the stock broke out in February 2011 and hasn’t
looked
back.

Even
though it hasn’t been a straight
shot up from that date, the stock has maintained price over the 200 day
moving
average, which currently stands at $36.14, which is more than $20 away
from the
current stock price. As a defensive stock, it may continue
to earn support from investors even if consumer strength continues to
lose
steam. Look for strong support at the
$46 dollar area.

RGR
has exceeded the S&P 500’s
performance by an astonishing 128% in the past year and almost 23% in
the past 3
months. Strong earnings and continued
love from investors pushed RGR ahead of the S&P by over 7.6% in
the past month
alone.

Jared
A Levy is the
Momentum Stock Strategist for Zacks.com. He is also the Editor in
charge of the
market-beating Zacks
Whisper Trader Service.

STURM RUGER&CO (RGR): Free Stock Analysis Report

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