Wunderlich Ponders A 'Key Inflection Point' At Smith & Wesson

In a report published Wednesday, Wunderlich Securities analyst Rommel Dionisio commented on Smith & Wesson Holding Corp SWHC. The specialist said that the company’s recent increase in guidance for the third quarter and for FY15 “could represent a critical inflection point in fundamental momentum […], given several prior quarters of lowered expectations and guidance in the past year.”

The firm maintained a Buy rating and $13 price target on the stock.

Shares recently traded at $11.85, up 1.5 percent.

While the industry as a whole has been facing strong headwinds, especially derived from retailer inventory destocking, management and analysts cited several indicators of this trend being reversed. Wunderlich expects Smith & Wesson to recover within two to three quarters, returning to “normal” earnings (the company currently expects EPS of $0.68-$0.72 for FY2015).

“Given impressive market share gains in recent years, supply chain enhancements, increased vertical integration, and expected accretion from the BTI acquisition, we would view an approximate $1.20 level as being more of a “normal” EPS pattern for Smith & Wesson, which naturally would assume normalized overall industry conditions,” the report explained.

Another positive catalyst highlighted by Dionisio is Smith & Wesson’s new compact pistol, the M&P 22. This pistol “features the styling and ergonomics of the best-selling M&P pistol line, but fires a smaller .22LR cartridge (used primarily for target shooting), a much cheaper and more readily available round than full-sized ammunition.”