Smith & Wesson Soars on Buyback Plan - Analyst Blog


Leading firearm manufacturer, Smith & Wesson Holding Corporation ( SWHC ) approved a buyback of up to $100 million worth of shares. The company's shares shot up 5.2% to $9.78 on Friday, Jun 14, 2013, on the announcement of the share repurchase program and its impressive preliminary fiscal fourth-quarter 2013 earnings report. This marks the highest one-day jump since Jan 16, 2013.

The gun maker Smith & Wesson also said that the $100 million repurchase plan replaces a $15 million program announced in December last year. This includes $75 million that would be purchased through a fixed-price tender offer. Depending on the stock price and number of shares purchased, this buyback will likely cut the number of outstanding shares by around 15%.

The company's buyback announcement assures shareholders that all is well with the company. This is further backed by a surge in demand seen in the fiscal fourth quarter 2013. Based on preliminary data, the company expects a 38% jump in its revenue in the quarter from the year-earlier period. The increase in demand for firearms maybe in anticipation of tighter regulation for weapons in the wake of a series of unfortunate shooting incidents in the recent past. The Boston Marathon terror attack on Apr 15, 2013 and the tragic shootout at the Sandy Hook Elementary School Newtown, Connecticut on Dec 14, 2012 had sparked off fierce controversy about the proliferation of firearms.

In fact, Springfield, Mass.-based Smith & Wesson benefited from the demand leap, saying it anticipates its earnings to report at 44 cents per share, up from the 27 cents in the year-ago quarter and from the Zacks Consensus Estimate of 41 cents. As a caveat, the possibility of a new gun law might have an adverse impact on gun sales in the upcoming quarters.

The company, which plans to report fourth-quarter earnings on Jun 25, provided earnings per share guidance of 38 cents to 40 cents on the back of sales of $165 million to $170 million in Mar 2013.

The present valuation also looks attractive as Smith & Wesson is trading at a forward P/E of 9.4x, a 34.5% discount to the peer group average of 14.4x.  Return on Equity of the company is 50.6%, substantially higher than the peer group average of 16.6%.

Smith & Wesson retains a short-term Zacks Rank #3 (Hold). Other better-placed stocks worth buying now include Sturm, Ruger & Company Inc. ( RGR ), Black Diamond, Inc. ( BDE ) and Polaris Industries, Inc. ( PII ). While Sturm, Ruger & Company carries a Zacks Rank #1 (Strong Buy), Black Diamond and Polaris hold a Zacks Rank #2 (Buy).

BLACK DIAMOND (BDE): Free Stock Analysis Report

POLARIS INDUS (PII): Free Stock Analysis Report

STURM RUGER&CO (RGR): Free Stock Analysis Report

SMITH & WESSON (SWHC): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: BDE , PII , RGR , SWHC

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