Smith & Wesson Holding Corporation (SWHC) Stock: Firing Blanks?

Smith And Wessen SWHC Stock News

FeaturedStocks December 3, 2016 



As a day trader, you will likely be shorting S&W stock with declines approaching 10% on Friday, 2 December 2016. However, this massive enterprise has many positives going for it. First of all, the company’s market capitalisation is $1.22 billion, and it has a respectable price/earnings ratio of 10.86. The earnings per share is $1.99 and the 1-year target estimate price is $28.44 per share. It should be pointed out that despite the sharp drop in the stock price today, the company has exceeded expectations over all previous 4 quarters. The actual earnings have powered ahead of estimates, and this bodes well for traders.

Smith & Wesson Holding Corporation (SWHC) stock is down to $2.35, or 9.80% at $21.62 per share. The 52-week trading range of the stock is $18.42 on the low end and $31.19 on the high end. We are clearly inching closer towards the 1-year low.

Massive Credit Expansion for Smith & Wesson Holding Corporation

At the end of November, Smith & Wesson Holding Corporation increased its revolving credit to $350 million, up 100%. On top of that, the company’s credit facilities increased to $150 million, from $50 million. This brings the company’s overall financing firepower up to $500 million. The significance of this is that it grants S&W Holding Corporation the ability to acquire other companies. An interesting binary dilemma faced gun manufacturers prior to the US presidential elections: the prospect of a Clinton presidency was a short-term stimulus to gun manufacturers like SWHC, but the pro-gun policies of President-elect Donald J. Trump have ironically led to a sharp decline in gun sales. Now that there is no more urgency to purchase guns over the next 4 years, gun manufacturers have had to strategize about how to keep revenues and earnings growing.

Could Smith & Wesson Buy Out Rival Gun Manufacturers

For SWHC, the strategy is clear: increase the credit facilities to make the necessary acquisitions to keep the company profitable. If Smith & Wesson decides to acquire rival gun manufacturers, it now has the financial firepower in the form of $500 million in financing available to it. Other gun manufacturers with strong balance sheets include the New York Stock Exchange-listed Sturm Ruger (RGR), which is certainly competing strongly with Smith & Wesson Holding Corporation. The company recently released Q2 2017 results for the period ending October 31, 2016. According to the figures, the EPS came in at $0.68, higher than the Zacks estimate of $0.55. The 23.6% earnings surprise was a welcome treat for investors. Earnings also came in 172% higher than the year-on-year figure from Q2 2016.

In Terms of Actual Revenues, this is how S&W Performed:

  • In Q2 2017 (fiscal year) total sales amounted to $233.5 million – up 2.4% from the Zacks estimate of $228 million.
  • The company’s revenues increased by 63.1% from the year on year figures for Q2 2016.

Smith & Wesson has generated positive earnings surprises since October 2015. Estimates have consistently been below actual figures, and the company’s sales have outperformed expectations. For the quarter ending October 31, 2016, income amounted to $52.2 million, up from $21.8 million a year ago in the same quarter. Gross margin also increased substantially to 41.8% as opposed to the 39.2% during Q2 2016 (Fiscal quarter). The company had $73.9 million of cash/cash equivalents on hand by October 31, 2016, markedly less than the $191.3 million on April 30, 2016. In terms of guidance for the fiscal year in 2017, non-GAAP earnings are expected to fall in the range of $2.42 through $2.47 EPS. This is higher than the $2.38 through $2.48 range that was previously forecast. Revenues are also expected to increase through the 2017 fiscal year in the range of $920 through $930 million.

While most of the news is positive, the EPS for this quarter is lower than the EPS for the previous quarter. A slowdown in gun sales and associated industries is evident now that the GOP has the Oval Office.

Disclosure: None

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