Smith & Wesson Holding Corporation SWHC is scheduled to report second-quarter fiscal 2016 results after the market closes on Dec 8, 2015. The gun maker has a decent earnings history. It has beaten estimates in the last four quarters, delivering an average positive surprise of 46.10%. Let’s see how things are shaping up for this quarter.
Factors at Play
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 firearm accessories, branded products, apparel and related shooting supplies.
As projected during its fiscal first-quarter earnings call, the company expects non-GAAP earnings to be between 19 cents and 21 cents per share for the second quarter. The non-GAAP outlook excludes 5 cents for acquisition-related amortization partially offset by the tax effect of 2 cents, so that the GAAP EPS outlook is expected to be between 16 cents and 18 cents. The company expects its fiscal second quarter to be a big one owing to the retail shopping season and hunting activity.
The FBI's National Instant Criminal Background Check System (“NICS”) showed a 19.8% year-over-year uptick in permit applications in the three-month period (Aug-Oct 2015). Though one cannot draw a one-to-one co-relation between the NICS report and the number of firearms sold, any upward or downward movement of firearm background checks is likely to have a similar impact on firearm sales.
Moreover, shares of Smith & Wesson climbed 3.6% in three days to close at $18.99 on Dec 4 following high-profile mass shootings. Notably, shares surged more than 100% so far this year. Gun control has become an important political issue once again following the Dec 2 mass shooting in San Bernardino, CA which left 14 people dead and 21 injured. Hence, the fear of tightening gun laws owing to the wave of recent shootings may drive up gun sales in the near term.
Earnings Whispers
Our proven model does not conclusively show that Smith & Wesson is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Zacks ESP: Smith & Wesson has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 20 cents per share.
Zacks Rank: Smith & Wesson carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, when combined with a 0.00% ESP, the surprise prediction becomes difficult.
We caution against Sell-rated stocks (Zacks Rank #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Peer Releases
The leading publicly traded U.S. firearms maker, Sturm, Ruger & Company, Inc.’s RGR third-quarter 2015 earnings of 62 cents per share missed the Zacks Consensus Estimate of 70 cents by 11.4%. Earnings, however, climbed 82.4% from 34 cents per share earned in the year-ago quarter on higher sales.
Zacks Rank
Better-ranked stocks in the same space are Callaway Golf Co. ELY and Pool Corp. POOL. While Callaway holds a Zacks Rank #1 (Strong Buy), Pool Corp. carries a Zacks Rank #2 (Buy).
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