Gunmakers Surge as Smith & Wesson Is Upgraded on Profit Forecast

  • Outlook doesn’t assume possible sales jump after shooting
  • Cowen sees ‘handgun vigor,’ says long-gun sales are up

Gunmaker stocks surged after Smith & Wesson Holding Corp. predicted firearm demand would hold strong -- regardless of any fallout from the mass shooting in Florida -- and two research firms upgraded the shares.

“It’s a little hard to tell” whether buyer concerns about tightened gun control will result in a meaningful increase in sales, Chief Financial Officer Jeff Buchanan told analysts. Still, the company laid out an annual profit and sales forecast that exceeded analysts’ estimates.

Lawmakers have stepped up talks about gun laws following the massacre Sunday in an Orlando nightclub. Firearm demand often rises after mass shootings as buyers stockpile weapons for self-defense or in preparation for a possible push to strengthen gun legislation.

Smith & Wesson jumped 8 percent to $23.49 at 12:12 p.m. Friday in New York, pushing the stock into positive territory for the year. Rival Sturm Ruger & Co. climbed 1.8 percent to $60.50.

“Strong management with an intelligent strategy and healthy financials offer potential” for further improvement at Smith & Wesson, Cai Von Rumohr, an analyst at Cowen & Co., said in a note. Von Rumohr wrote that sales of long guns are up and cited continued “handgun vigor” as he upgraded the stock to outperform from market perform. Craig-Hallum Capital Group raised its rating to buy from hold.

Democratic Filibuster

After the Orlando massacre, in which 49 people were killed, Senate Democrats waged a nearly 15-hour filibuster to force votes on several gun-control measures. Presumptive Republican presidential nominee Donald Trump advocated banning terrorism suspects from obtaining firearms.

For more on gun-control efforts in Congress, click here.

The suspect in the Sunday attack, Omar Mateen, was armed with an assault-type weapon and a handgun, authorities said. He also was killed. Shares of Smith & Wesson and Sturm Ruger surged the next day.

Adjusted earnings for fiscal 2017 will be $1.83 to $1.93 a share, Springfield, Massachusetts-based Smith & Wesson said in a statement Thursday after the close of regular trading. The projection was higher than the $1.66 average of analysts’ estimates. Revenue was forecast at $740 million to $760 million, compared with an estimate of $732 million.

“We believe investors expected a more muted guide,” Steven Dyer, an analyst at Craig-Hallum Capital Group, said in a note. “Most impressive to us, however, is that guidance does not assume any uptick in business post the recent Orlando shooting.”

Demand Jumps

The National Instant Criminal Background Check System, which serves as a proxy for firearm demand, rose 12.5 percent in the quarter ended April 30, Smith & Wesson said. The company reported adjusted profit of 66 cents a share for the fiscal fourth quarter, beating the 54-cent average of analyst estimates compiled by Bloomberg. Sales of $221 million compared with analysts’ estimate of $215 million.

Smith & Wesson introduced a number of new products in the quarter, including a pistol designed for personal protection, to capitalize on “strong demand” across categories, Chief Executive Officer James Debney said on a conference call. The company also plans to explore acquisition opportunities, he said.

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