Market Overview

Spotlight on Gun Stocks (RGR, SWHC, ATK)

Spotlight on Gun Stocks RGR, SWHC, ATK

It has been a turbulent week for firearm companies. Shares of Smith & Wesson (NYSE: SWHC) and Sturm, Ruger & Company (NYSE: RGR) fell following the tragedy in Newtown, Connecticut.

Then they rose again as gun and ammunition sales surged, even while state and federal gun control initiatives gear up, and then fell again on Friday, the day the NRA made its public response to the Sandy Hook massacre.

Here is a quick look at the performance of these two stocks, as well as from ammunitions maker Alliant Techsystems (NYSE: ATK) and what analysts have been expecting from them.

Smith & Wesson

This Springfield, Massachusetts-based maker of handguns, rifles and firearm-related and security-related products and accessories has a market capitalization near $525 million. The long-term earnings per share (EPS) growth forecast is about 22 percent, and the price-to-earnings (P/E) ratio is lower than the industry average.

Its return on equity is about 46 percent. Note though that the short interest was more than 14 percent of the float at the November 30 settlement date, before the events in Newtown. That was the highest number of shares sold short in a year.

The six analysts surveyed by Thomson/First Call who follow the stock on average recommended buying shares. Their mean price target, or where they expect the shares to go, is about 39 percent higher than the current share price. That target would be a new multiyear high.

But the share price fell more than 17 percent in the past month, and despite extraordinary volume ended last week about where it started it. However, shares still are trading more than 83 percent higher than a year ago. The stock has narrowly performed Sturm, Ruger and the broader markets over the past six months.

Sturm, Ruger

Headquartered in Southport, Connecticut, which is about 25 miles from Newtown, this company sports a market cap of about $835 million and offers a dividend yield of about 3.5 percent. Its P/E ratio is in-line than the industry average, and EPS have growth more than 117 percent in the past five years.

The operating margin is higher than the industry average and the return on investment is more than 39 percent. The short interest is more than 48 percent of the float, which is also the highest number of shares sold short in a year.

The average recommendation of the three analysts surveyed is to hold shares, compared to a consensus Buy recommendation a week ago. They believe the stock still has plenty of room for growth, as their mean price target is almost 13 percent higher than the current share price. But note that the target is less than the 52-week high reached at the end of November.

Shares are down more than 20 percent from a month ago, and the share price also ended the volatile past week essentially flat. But shares are still trading more than 26 percent higher year to date. While the stock has narrowly underperformed competitor Smith & Wesson over the past six months, it has outperformed the broader markets.

Alliant Techsystems

This aerospace and defense company is also a leading supplier of ammunition to law enforcement agencies, the military and commercial customers. It has a market cap near $2 billion and a dividend yield of about 1.6 percent.

The P/E ratio is less than the industry average. But the long-term EPS growth forecast is less than five percent. The return on equity is about 19 percent. The short interest is near two percent the float.

The consensus recommendation of the 14 polled analysts is to hold on to shares, though five of them recently rated the stock at Buy or Strong Buy. But note that at $63.44, the current share price has overrun the mean price target. Price targets range from a low of $50 to a high of $75.

The share price climbed steadily last week and hit a 52-week high on Friday. Shares are trading about 32 percent higher than six months ago but are up less than 10 percent year to date.

The stock has outperformed larger competitor General Dynamics (NYSE: GD) and the broader markets over the past six months.

Posted-In: alliant techsystems general dynamics Smith & Wesson Sturm Ruger & CompanyLong Ideas Short Ideas Trading Ideas Best of Benzinga

 

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