Among the biggest winners in Friday's early trading are
Smith & Wesson (Nasdaq: SWHC)
and
Cooper Cos. (
COO
)
.
Soon after President Obama took office, gun sellers did a brisk
amount of business on fears that firearms laws would soon become
more restrictive. This chart of gun maker
Sturm Ruger (
RGR
)
paints quite a picture. Itsshares rose nearly 1,000% before a
recent pullback.
More recently, these stocks have been cooling off under the
theory that "everyone who wants a gun now has a gun."
Perhaps the "gun trade" may have more life. With President Obama
leading in the polls, gun sales are apparently moving higher,
according to firearms maker Smith & Wesson. On Thursday
evening, the company reported a 48% jump in fiscal first-quarter
sales to $136 million, well ahead of the $129 million consensus
forecast. And whereas analysts had been anticipating sales in the
current quarter to fall back to $118 million, the company says that
orders remain strong and sales will be at least $130 million.
Full-year sales guidance was increased to a range of $530-54
million from $485-505 million, representing a roughly 30% gain from
fiscal (April) 2012.
Unlike Sturm Ruger, Smith & Wesson had not previously been as
much of a beneficiary of the "gun trade." While Sturm Ruger's sales
grew 81% in the first three years of President Obama's term, Smith
& Wesson's sales grew a more modest 22%, or less than 10%
annually.
Perhaps the company's current momentum is a sign of rising appeal
among gun owners for Smith & Wesson. A positive sign for future
results: Smith & Wesson'sbacklog spiked 130% from a year ago to
$392 million.
Looks can be deceiving
When a company topsprofit forecasts, you need to dig deeply into
the numbers to see just why the quarter was so good. That thought
comes to mind after parsing the results of Cooper Cos., a
healthcare firm that primarily focuses on contact lenses and
women's healthcare. Though Cooper delivered a
stellarquarterly report Thursday evening and though shares are
hitting new all-time highs, looks can be deceiving when it comes to
the company's growth prospects.Earnings per share (
EPS
) grew an impressive 26% in the company's fiscal third quarter, to
$1.36, but sales grew just 8%, to $378 million. For a bit of
context, Cooper has not boosted sales in any given year in the past
decade, except when it has made anacquisition .
Third-quarterearnings were almost completely due to a
lower-than-expectedtax rate . In other words, investors are bidding
up a stock 7% this morning that really just met estimates (when
lowertaxes are excluded).
Make no mistake, Cooper's projected profit growth is decent.
Citigroup has just upgraded its earnings model and sees earnings
rising 11% this year to $5.06, 11% in fiscal (October) 2013 to
$5.61 and 12% in fiscal 2014 to $6.28. Yet shares now trade for
more than 15 times that fiscal 2014 forecast, and it's very hard to
justify any highermultiple than that. This is a solid
company, but you want to own it when shares are not quite so fully
valued.
Action to Take -->
Smith & Wesson has already made a huge run off its low, though
it could keep rallying if the odds that President Obama wins
re-election continue to strengthen. Analysts atBenchmark Capital
see further upside to $13 or around 13.5 times this fiscal 2014EPS
estimate of $0.96. The very strong backlog implies that the stock
should at least be able to hold its own in the near-term. The
biggest risk: A Romney victory, which cools off the "gun
trade."
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.