Here's Why Smith & Wesson Benefits From 'Normalized' Demand

Smith & Wesson Holding Corp (NASDAQ: SWHC) is profiting from a gun industry turnaround as dealers' inventory pruning comes to an end, an analyst said Wednesday.

The firearms manufacturer changed hands recently up more than 8 percent at $14.18. The company on Tuesday beat earnings expectations and raised its outlook.

Wunderlich's Rommel Dionisio boosted his target 13 percent to $17 and said improving fundamentals coupled with a major military contract will drive the stock higher.

Smith& Wesson's shares tanked last year when firearms sales fell from inflated levels after the so-called "Obama gun bubble" completed its course.

Dionisio said falling dealer inventory and a "normalizing of demand" are encouraging signs for gun makers generally, and for Smith & Wesson in particular.

Competitor Sturm, Ruger & Company (NYSE: RGR) has seen its shares gain more than 26 percent sine the company released a similarly upbeat outlook last week.

Sturm changed hands recently at $54.01, up 2.5 percent.

Dionisio said dealers' reduction in inventory will end by this summer, enabling gun makers to boost capacity utilization and thereby post wider profit margins.