Smith & Wesson to Buy Tri Town - Analyst Blog

Springfield, MA-based Smith & Wesson Holding Corp. SWHC has plans to acquire Tri Town Precision Plastics Inc. for $23 million in cash through its wholly-owned subsidiary, Deep River Plastics LLC. This move will strengthen Smith & Wesson's focus on its Military and Police (M&P) firearm business. The deal is expected to close by May 5 and is subject to customary closing conditions.

The impending acquisition will enable Deep River Plastics to acquire all of the net assets of the polymer supplier, Tri Town Precision. This company has long been a supplier of polymer frames and associated products for a large number of Smith & Wesson firearms, comprising M&P models. These molds accounted for nearly two-thirds of Tri Town Precision's revenues generated from sales to Smith & Wesson.

The takeover will thus allow Smith & Wesson to vertically integrate key manufacturing components thereby driving flexibility and lowering production costs. Importantly, the deal is expected to be accretive to fiscal 2015 results, boosting its gross margin by 70 to 90 basis points and earnings per share by 4 cents to 5 cents.

Since the reelection of President Obama in 2012, gun sales have surged on fears of tighter regulation for weapons in the wake of a series of unfortunate shooting incidents in the past. The Boston Marathon terror attack on Apr 15, 2013, and the tragic shootout at the Sandy Hook Elementary School Newtown, CT on Dec 14, 2012, had sparked off fierce controversy about the proliferation of firearms.

Apart from Smith & Wesson, other gun makers like TASER International Inc. TASR and Sturm, Ruger & Company, Inc. RGR have also benefited from the demand leap. Smith & Wesson posted upbeat results with earnings beating the Zacks Consensus Estimate by 20.7% in the third quarter of fiscal 2014. The reported number was also higher than the year-ago earnings by 34.6%. The bottom-line beat came on the back of higher sales. The company's gross margin also expanded 360 basis points year over year during the quarter, buoyed by a favorable product mix, absorption, and manufacturing efficiencies, accompanied with reduced promotions and the absence of lower-margin Walther product sales.

The company continues to launch new products, as seen at the SHOT Show held in January, particularly in the revolver category. These products were well received with incremental orders pouring in from customers.

Smith & Wesson currently has a Zacks Rank #2 (Buy). Another stock worth buying now is Marine Products Corp. MPX with a comparable Zacks Rank.