The board of directors of
Smith & Wesson Holding Corporation
) - the leading firearm manufacturer - approved the buyback of an
additional $15 million worth of stock, to be completed by June
30, 2013. The repurchase will be funded by the company's cash in
hand and its working capital.
STURM RUGER&CO (RGR): Free Stock Analysis
SMITH & WESSON (SWHC): Free Stock Analysis
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On December 6, 2012, the board of directors had authorized the
buyback of $20 million shares which has been completed already.
The fresh authorization came in the wake of rumors that new gun
restriction would be implemented in the U.S. A series of
unfortunate shooting incidents in the recent past has triggered
off controversy regarding gun permits and control. Following the
tragic shootout at the Sandy Hook Elementary School Newtown,
Connecticut, on December 14, the firearm manufacturer saw its
share price drop by a sharp 10.5%.
In this scenario, the timing of this additional share buyback
raises questions. Is this buyback a strategic move to
arrest the plummeting share price, assuring shareholders that all
is well with the company?
As a matter of fact Smith & Wesson has performed well during
the first half of fiscal 2013 and exited the second quarter of
fiscal 2013 with a firearm backlog of $332.7 million versus
$149.9 million at the end of the comparable prior-year period.
However, the possibility of a new gun law might have an adverse
impact on gun sales in the upcoming quarters.
The present valuation looks attractive as Smith & Wesson is
trading at a forward P/E of 7.87x, a 39% discount to the peer
group average of 12.90x. Return on Equity of the company is
46.3%, substantially higher than the peer group average of 7.3%.
Smith & Wesson along with its peer
Sturm, Ruger & Company Inc.
) retains a short-term Zacks # 2 Rank (Buy).
We believe the strong backlog and solid fundamentals will see
Smith & Wesson through these uncertain times.
Based in Springfield, Massachusetts, Smith & Wesson Holding
Corporation was founded in 1852. The company manufactures,
designs and supplies a large variety of firearms and related
items to its worldwide customers. The company has 1,346
full time employees and a market cap of $0.54 billion.