Smith & Wesson (SWHC) Sinks on Sour Guidance
Shares of gunmaker Smith & Wesson (SWHC) plunged last week, although the company topped expectations on both earnings and revenue. During its first quarter, Smith & Wesson earned an adjusted $0.40 per share, a 42.9% year-on-year increase that topped the consensus estimate of $0.36. Revenue rose 25.74% to $171, also beating the $165 million that analysts had expected. Daily Chart
The company attributed its strong top and bottom line performance to continued robust sales of its M&P (military and police) products.
Gross margin rose from 40.1% to 45.0%, due to a better product mix that resulted in wider margins. Operating income also climbed 52.6%. The company also finished the quarter with $146.5 million in cash and equivalents, compared to $100.5 million in the prior year quarter. By all accounts, Smith & Wesson had outgrown the negative publicity the company received after the tragic shootings at Sandy Hook Elementary, which resulted in a public outcry for increased bans on firearms. Assault rifles, a major part of Smith & Wesson's M&P portfolio, were specifically targeted, and some analysts believed that it could have sliced more than 20% off the company's full-year earnings. Its primary competitor, Sturm, Ruger & Company (RGR
), suffered less, thanks to a portfolio primarily focused on small firearms and hunting rifles. Smith & Wesson continues to invest heavily in R&D for new products to enhance its firearms portfolio and possibly diversify away from the heavier weapons that are prone to increased legislation. Although Smith & Wesson posted a solid quarter, its guidance was less stellar. The company now expects second quarter GAAP-adjusted earnings to fall between $0.20 to $0.22 per share, missing the consensus estimate of $0.29. Second quarter revenue is anticipated between $135 million to $140 million, also lower than the $143 million that analysts had expected. That lower-than-expected guidance caused shares to slide more than 8% immediately afterward. The stock now trades at 7.97 times forward earnings with a 5-year PEG ratio of 0.29 -- which makes it a very undervalued growth stock, if analysts long-term estimates are to be believed. Ruger, by comparison, trades at 15.48 times forward earnings -- nearly twice as expensive as Smith & Wesson. However, Ruger might be a better pick for income investors, since it pays a quarterly dividend of $0.65 per share -- a 3.54% yield at current prices. Other News About SWHC Smith & Wesson Shares Fall as Gun 'Frenzy' Wanes
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Published on Sep 12, 2013
By Leo Sun