Tag Archives: NASDAQ:SWHC

Smith & Wesson: Zacks’ Bull of the Day Play

Smith & Wesson (SWHCFree Report) is no strager to controversy. Gun advocates will tell you that people kill people while anti-gun supports say that people use guns to kill people. While both sides have their points, investors tend to think of SWHC as a stock that can benefit anytime the discussion comes up again. SWHC is a Zacks Rank #1 (Strong Buy) stock and it is the Bull of the Day.

The Numbers

SWHC beat the Zacks Consensus Estimate of $0.53 when it reported $0.62 in the first week of September. This $0.09 beat was good for a 17% positive earnings surprise.

The topline was also impressive with the company delivering $207M in sales when the Zacks Consensus Estimate was looking for $197M. That $10M beat was good for an 5% positive revenue surprise.

Description

Smith & Wesson Holding Corporation is one of the world’s leading producers of handguns, law enforcement products and firearm safety and security products. Law enforcement personnel, military personnel, target shooters, hunters, collectors and firearms enthusiasts throughout the world have used the company’s products with confidence for 150 years. Smith & Wesson Corp. also manufactures and markets Smith & Wesson branded handcuffs and other products utilizing its metal working expertise and providing products and services to many external customers.

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Earnings History

The last time SWHC missed the Zacks Consensus Estimate was in 2011. Since then, there has been a string of 21 consecutive positive earnings surprises. This is a very enviable track record and demonstrates management’s ability to guide Wall Street to a beatable number and then still outperforming expectations.

Estimates

When you have a Zacks Rank #1 (Strong Buy) you are going to see positive earnings estimate revisions. Following the most recent beat, the Zacks Consensus Estimate for 2016 has moved from $1.87 to $2.47. That is a huge move.

The 2017 Zacks Consensus Estimate was $2.15 prior to the earnings release and has since moved higher to $2.39

Valuation

One thing that I have been looking for in stocks lately is room for multiple expansion. SWHC has that in spades. The stock trades at just 11x forward earnings compared to an industry average of 27x. The price to book multiple of 4.6x is inline with the industry average but the price to sales multiple of 2x is also showing a discount the industry average of 3x.

Chart

Zacks has developed a chart that helps investors see how earnings estimates have impacted the price of the stock over the last several years. We call this chart the price and consensus chart, and each color coded lines represents analyst estimates over a designated year. As estimates increase, the stock tends to follow. The Zacks Rank is impacted by earnings estimate increases, beats and incorporates the idea of analyst agreement and magnitude. As a Zacks Rank #1 (Strong Buy) we see that estimates are moving higher.

Price and Consensus

Price and Consensus | Quote

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Smith & Wesson: Zacks’Bull of the Day Play

While at times controversial, guns are a fixture in America, and have seen massive surges in purchases over the past several years.  With each news story about terrorism, or some government official talking about taking away gun owners’ rights, gun sales soar.  Gun manufactures have seen huge increases in total sales not just in firearms, but accessories as well.  Therefore, Smith & Wesson (SWHCSnapshot Report) is the Zacks Bull of the Day.

This Zacks Rank #1 (Strong Buy) is one of the world’s leading producers of quality handguns, law enforcement products and firearm safety and security products. Law enforcement personnel, military personnel, target shooters, hunters, collectors and firearms enthusiasts throughout the world have used the company’s products with confidence for 150 years. Smith & Wesson Corp. also manufactures and markets Smith & Wesson branded handcuffs and other products utilizing its metal working expertise and providing products and services too many external customers.

In their most recent earnings announcement, the company significantly beat both the Zacks Consensus Earnings and Revenue estimates by posting year over year gains in quarterly net sales (+61.5%), and quarterly GAAP net income (+287%).  Specifically, the firearms division saw net sales improve +54.4% YoY, with sales of handguns up +56.5%, and long gun sales up 85.6%.  The accessories division had net sales improve +163.9% over the same time period.  Also, management was also able to increase gross margins from 33.6% to 41.1%.

According to James Debney, President and CEO, “The combined strength of our firearms and accessories businesses delivered an exceptional performance, driven by healthy consumer demand across our growing portfolio of firearm and outdoor lifestyle offerings. During the third quarter, the Adjusted National Instant Criminal Background Check System (NICS) data, which serves as an indicator of consumer purchases, reported a significant increase in growth versus the prior year, especially in handguns. In addition, our product sell-through at distribution was much stronger than we had anticipated. Our flexible manufacturing model, combined with our ability to successfully utilize the internal inventories we had built in anticipation of potential sell-through strength, allowed us to capture incremental sales in the third quarter. Despite the fact that we entered our fourth quarter with lower inventories, we are focused on increasing the production rates of our key products during the fourth quarter and we are therefore increasing our guidance for the full fiscal year.”

Due to the strong quarter, management raised both non-GAAP EPS guidance for FY 16, and revenues as well.  Non-GAAP guidance was raised from a range of $1.36-$1.41 to a range of $1.68-$1.70.  The top-line guidance was lifted from a range of $650-$660 million to a range of $712-$717 million.

As you can see from the graph below, Smith & Wesson has a very strong history of beating earnings expectations, and has seen nice price bumps after each announcement.  You have to go back to 2011 for the last time they missed expectations.

Increasing Estimates

Due to the improved guidance by management, and their stellar quarterly performance, estimates for Q4 16, Q1 17, FY 16 and FY 17 have all seen upgrades over the past 30 days; Q4 16 rose from $0.47 to $0.54, FY 16 improved from $1.42 to $1.70, Q1 17 was raised from $0.34 to $0.36, and FY 17 jumped up from $1.52 to $1.73.

Bottom Line

A recent report by the FBI regarding firearm background checks stated that in February 2016 they did 2.6 million checks which was slightly down from their record month of 3.3 million in December 2015.  Further, the FBI stated that they did 23.1 million checks in 2015, and expect that number to rise +6.5% for 2016.  Which indicates that they expect gun sales to continue to rise throughout 2016.  This coupled with management’s estimate upgrades has SWHC looking good in 2016 and beyond.

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Smith & Wesson: Zacks’ Bull of the Day Play

Today’s Bull of the Day may spark a little controversy. They are a company that makes hand guns. Now I’m really not concerned with which side of the aisle anybody lands on. What I am concerned with is what side of the breakeven line my stock picks are. With this stock, I’m confident you’ll be seeing some green in the next twelve months.

Smith & Wesson (SWHCSnapshot Report) manufactures and sells firearm products in the United States and internationally. The company operates in two segments, firearms and accessories. It offers handguns, including revolvers and pistols; long guns, such as sporting, bolt action, and single shot rifles; hunting rifles; black powder firearms; handcuffs and restraints; and firearm-related products and accessories.

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Analysts have been bullish on the stock over the last sixty days. Two analysts raised their earnings estimates for the current quarter, current year and next year. The bullish attitude has pushed up our Zacks Consensus Estimate across the board. The most dramatic increase has been the current year and next year’s numbers. Current year consensus has jumped from $1.02 to $1.16 while next year’s numbers have gone up from $1.03 all the way to $1.28.

The recent bullish sentiment is following yet another quarterly earnings beat for Smith & Wesson. The streak the company has been on is impressive. SWHC has beat a whopping 17 quarters in a row. The last earnings beat saw earnings come in at 32 cents versus our Zacks Consensus Estimate of 22 cents. That’s coming on the heels of another 10 cent beat the previous quarter.

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Shares of Smith & Wesson have been locked and loaded all year. After the August dip took shares down to $16.50 we’ve seen a strong rebound to within a buck of the previous 52-week high. With a CCI that’s above the zero line but barely overbought at 91, the next push higher could be right around the corner. The 20-day sits below the current price action down at $17.68 right now. Any positive news could be enough to get this one over the hump.

David Bartosiak is the Momentum Stock Strategist with Zacks, editor of the Momentum Trader and Home Run Investor, and host of “Trending Stocks”

Smith & Wesson: Zacks’ Bear of the Day Play

Over the past several years, gun manufacturers have seen their sales boom due to several factors, but it appears as though the golden age of gun purchases is fading.  In 2013, more than 21 million applications were put through the National Instant Criminal Background Check System, which was almost 8% higher than 2012, and marked the 11 consecutive year the number increased.  But in 2014, gun manufacturers saw a sizable decline in overall gun sales, and background checks.  This has caused a significant buildup in inventories, especially at competitors of Smith & Wesson.

Smith & Wesson (SWHCSnapshot Report) is one of the world’s leading producers of quality handguns, law enforcement products and firearm safety and security products.  This 150 year old company also manufactures and markets Smith & Wesson handcuffs, and other specialized metal working products.

Recent Earnings Data

During the gun boom over the past two plus years, Smith & Wesson has performed very well, and has posted a four quarter average positive earnings surprise of 15.82%.  But in the most recent quarter, management saw total revenues decline 21% year over year due to waning sales and difficult comps.  Specifically, handgun sales dropped 15%, and long gun sales declined 50% year over year.

While sales have begun to slump, inventories have begun to grow.  While the inventory situation is not as bad for Smith & Wesson as it is for their competitors, it will negatively impact Smith & Wesson nonetheless.  This is due to the fact that the competition, who has a large inventory, has begun to increase promotional activity (sales) in order to reduce their inventory, which is slowing sales at Smith & Wesson.

As you can see from the Price and Consensus table below, earnings expectations for Smith & Wesson are declining, and are expected to continue through 2015.

Declining Estimates

The table below shows how the Zacks Consensus Earnings Estimates has changed over the past 60 days for Smith & Wesson.  As you can see the revenue declines, and inventory issues are negatively impacting Smith & Wesson’s consensus estimates out through 2016.

Bottom Line

Declining demand, growing inventories, and competition discounts continue to pressure both the top and bottom lines for Smith & Wesson.  Unfortunately, for Smith & Wesson, this pressure could negatively impact sales through the first half of 2015.

Other Stocks to Consider

If you are inclined to invest in the Leisure & Recreational Product segment, Black Diamond (BDESnapshot Report), Zacks Rank #1 (Strong Buy), or Polaris Industries (PIISnapshot Report), Zacks Rank #2 (Buy) are worth looking into.

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Smith & Wesson: Zacks’ Bear of the Day Play

Gun control. Conceal and carry. Some of the most hotly debated political issues out there right now. I’m not in the business of politics. I’m in the business of making money in the stock market. And when I find a company that’s misfiring I try to tell investors to steer clear of it. Not for any underlying political stance I have on an issue. Trust me, I could care less. But in the case of today’s Bear of the Day, you may want to put on some Skynyrd and get back your bullets.

Smith & Wesson (SWHC – Snapshot Report) is a Zacks Rank #5 (Strong Sell) that has been stinking up the place recently. It’s not just the chart that leaves something to be desired, but the earnings revisions to the downside that are really burying this one. Frustrating for investors who enjoyed a big rally in the first half of the year.

Smith & Wesson has a vision of being the leading firearms manufacturer in the world. The name carries a lot of weight as the company has been around since 1852. Headquartered in Springfield, MA, SWHC has 1,700 employees. They are a huge player in the consumer and professional firearms markets.

But the last quarterly report is what has put this gun maker back into the holster. Year over year sales were down 22.9%. Long gun sales were responsible for 87% of the sales decline. Handgun sales fared much better, losing only 3.2% year over year. It’s not just the sales numbers but also the margins that suffered. Gross margin fell from 42.6% to 37.2%.

One bit of good news for SWHC was the jump in new shooters. Nearly 11% of people that have been sport shooting in 2012 were beginners. And a handgun usually isn’t the kind of thing you only buy one of. Nearly 90% of handgun owners own multiple firearms with an average of 8 handguns per owner. Nearly 25% of first-time buyers buy at least one more firearm with the first year after their first purchase.

Yet analysts remain unimpressed. Four analysts have dropped their earnings estimates for the current quarter, next quarter and the current year. This has dropped consensus for the current quarter from 28 cents all the way down to 7. The current year numbers look even worse, with consensus going from $1.42 per share to 91 cents.

Investors have been heading for the sidelines ever since the end of June. After experiencing a great run from the beginning of the year until then, the stock began to slide and has seen little in the way of support on the way down. Since dropping below its 25 day moving average shifted by 5 days in late June, the stock has barely poked its head above it. The last dramatic selling saw SWHC lose its hold on $13 and in the last week has dropped all the way down to $10.46 today. If you’re looking for an alternative in the same space you’re out of luck. Right now even Sturm Ruger (RGR – Snapshot Report) is a Zacks Rank #4 (Sell)

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