Smith & Wesson (SWHC) Plunges On Assault Rifle Ban Fears

Shares of gun manufacturer Smith & Wesson (SWHC: Analysis) plunged this week, despite reporting third quarter earnings that surprisingly more than tripled from the prior year quarter. The Springfield, Massachusetts-based company posted a profit of 26 cents per share, or $14.6 million, a 228% increase from the prior year quarter.

Revenue rose 38.8% to $136.2 million. Thomson Reuters analysts expected the company to earn 23 cents per share on revenue of $134 million. Daily Chart
Americans apparently purchased more firearms in anticipation of stricter gun laws from lawmakers across America. The company's industry peer Sturm Ruger (RGR: Analysis) also posted similarly strong quarterly earnings last week. CEO James Debney acknowledged that the quarter's strong results were attributed to "continued robust consumer demand for firearms", and highlighted the company's strong sales of military & police pistols as well as "modern sporting rifles". Debney also addressed the Sandy Hook tragedy, stating that his employees "were shocked and deeply saddened by the tragedy at Sandy Hook." However, he stated that the gun industry was a "part of important national discussion about how to cope with violence in our communities." He also remained steadfast in his stance, stating, "We will remain strong supporters of and defenders of the Constitution and the Second Amendment." The quarter was one filled with controversy, as the mass shooting at Sandy Brook Elementary School, which left 20 children and 8 adults dead last December, thrust demand for stricter gun laws into the national spotlight. President Obama has made stricter gun regulation a top priority for his second term in office. A ban on assault rifles with high-capacity magazines could be renewed. Wedbush securities Rommel Dionisio stated that a ban on assault rifles would impact Smith & Wesson's earnings by up to 40 cents per share for the year. Military & Police tactical rifles would immediately be banned, which currently generate 20% of Smith & Wesson's annual sales. A ban on high capacity magazines would also "severely hamper" sales of several of the company's pistols, stated Dionisio. Smith & Wesson forecasts earnings of 38 to 40 cents per share for the current quarter, and up to $1.19 per share for the full year. Both estimates top analyst forecasts for 30 cents per share for the quarter and $1.06 for the year. The company also raised its earnings guidance for 2013. The company now expects total revenue to come in between $575 to $580 million, exceeding the average analyst estimate of $561 million. However, some analysts believe that the surge in gun purchases may have peaked. The number of FBI background checks required for gun permits only rose 29% in February, compared to a 94% and 58% increase over the last two months. However, Cowen and Company analyst Cai von Rumohr noted that the decline in background checks may have resulted from demand outstripping supply at retailers. Shares of Smith & Wesson trade at 9.7 times forward earnings with a 5-year PEG ratio of 0.32. The stock does not pay a dividend. Other News About SWHC Smith & Wesson Earnings Triple In Latest Quarter As Consumers Scramble To Buy Guns Smith & Wesson plunges despite a huge surge in earnings. Smith & Wesson Raises Outlook as Gun Sales Soar A possible assault rifle ban scares American gun owners. Other Stocks in the News This Retailer May Be Doomed in 2013 Is Abercrombie & Fitch doomed? Is Zillow Zooming Past its Competitors? Is Zillow the Google of Real Estate? Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Mar 7, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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