Accelerated Sales And Little Discounting Driving Smith & Wesson

The US firearms industry continues to exhibit sharply accelerated sales, which should benefit Smith & Wesson Holding Corp SWHC in the near term, Wunderlich’s Rommel Dionisio said in a report. He maintained a Buy rating on the company, with a price target of $34.

U.S. firearms sales have skyrocketed over the past couple of months, with the Orlando incident spurring heightened concerns over individual safety, analyst Dionisio mentioned.

Favorable Mix

The current surge in demand is similar to the one witnessed from December 2015 to February 2016 after the terrorist attacks in Paris and San Bernadino. Dionisio pointed out that the difference is that in the earlier case the sales of handguns had outperformed long guns, while the current trend is of long guns outperforming handguns.

“Our recent channel checks of dealers and distributors noted that modern sporting rifles are currently the fastest growing major segment of the firearms market. Smith & Wesson, whose popular M&P15 rifle is one of the best-selling models of modern sporting rifles, should therefore benefit from positive mix shift given such industry trends,” the analyst wrote.

Lower Discounting

With the demand spike, promotions and discounting have been “unusually low,” which should boost gross margins for firearms producers like Smith & Wesson. “The company’s increased ability to outsource production of certain components also improves its ability to respond quickly to such demand surges, yet still retain a manageable fixed cost structure,” Dionisio added.

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