Smith & Wesson
) pre- announced a strong quarter back on June 13, and then beat
higher guidance on June 24. It is a Zacks Rank #1 (Strong Buy). It
is the Bull of the Day.
Over the last several months, there has been a lot of talk about
banning certain types of guns. That raised to a fever pitch after
the tragic events of Sandyhook in December of 2012. The following
months saw a social outcry to limit gun sales and it also saw
people that were on the fence about buying a gun do out a make a
It seems as though the growth in purchases of new guns is
continuing as the company continues to see higher revenue numbers.
SWHC makes and sell guns. From handguns to sporting rifles to
handcuffs, Smith & Wesson was founded in 1852 and is based in
Good Earnings History
Looking to the earnings history, I see a stock that has beaten the
number in each of the last 7 reports. The most recent quarter was a
beat of $0.01, which translated into a positive earnings surprise
of 2.3%. That was a decrease from the $0.05 beat reported for the
January 2013 quarter, a 23.8% positive earnings surprise and a 55%
positive earnings surprise posted in the July 2012 quarter.
Pre Announcement and Subsequent Move
On the evening of June 13, the company issued upside guidance of
$0.44 compared to the Wall Street consensus estimate of $0.40, so a
10% surprise can be built into the most recent number. The other
more surprising was the revenue guidance of $179M compared to the
then consensus of $170M.
Prior to the announcement the stock closed at $9.30, but after the
announcement the price was higher by 5.5%. Since the open on June
14, the stock has moved higher by about 8%. The combined move
computes to more than 13% and the stringing along of the good news
helped insulate shares from the recent downturn in the broader
Earnings Estimates Tick Higher
Estimates for FY2014 have been doing nothing but firing higher
throughout the year. In January the Zacks Consensus Estimate was
$0.93 where it stood for two months. An increase to $0.97 came in
March, and that was followed by another big move to $1.04 in April.
Following the most recent beat, estimates have jumped to $1.33 -
and that is just what investors want to see.
The valuation picture for SWHC is a great one. It is not that often
you find a company that consistently beats the earnings number and
sees good growth AND trades at a discount to the industry average.
The 8.3x trailing PE is almost half of the 16.4x industry average.
The forward PE of 7.6x is less than half the industry average of
15.6x, so on both PE measures the company is trading at a
significant discount to the industry average. The price to sales
metric also shows a significant discount, but the price to book is
the lone measure that has the company trading at a premium to the
The price and consensus chart the power of an improved outlook on a
stock price. Starting at the end of 2011, the stock jolted higher
as expectations for stronger earnings started to show up on analyst
reports. The ride since has been volatile, but mostly up, with the
stock moving from low single digits to double digits. With earnings
expectations continuing to rise, the stock seems to be headed for
new highs in the coming quarters.
Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor
in charge of the
Run Investor service
, a Buy and Hold service where he recommends the stocks in the
Brian is also the editor of
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a trading service that focuses on small cap stocks and also carries
a risk limiting strategy. Subscribers get daily emails along with
buy, and sell alerts.
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SMITH & WESSON (SWHC): Free Stock Analysis
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