Smith & Wesson 'Packin' Heat,' RBC Upgrades Stock

In a report published Friday, RBC Capital Markets analyst Steven Cahall upgraded the rating on

from Sector Perform to Outperform, while raising the price target from $16 to $21. Smith & Wesson reported robust 4Q results, with EBITDAC exceeding RBC estimates by 10 percent. The company issued an outlook that suggested continued top-line recovery. Analyst Steven Cahall believes that the company is poised to benefit from improving market trends. Smith & Wesson has guided to FY16 sales of $605–615m and adjusted EPS, excluding acquired amortization and debt extinguishment costs, of $1.02–1.07. "However, given improving trends the guidance certainly seems conservative," Cahall wrote. In the report RBC Capital Markets noted, "SWHC sales guidance is below market growth, which we think reflects mix and pricing pressure, but it still sets up sales for a solid recovery that supports a higher valuation. We also think SWHC is poised for potential capital deployment as it is an excellent cash generator." Due to historically poor operations, Smith & Wesson has traded at a discount to peers. However, these have "improved drastically under the current management team," Cahall said, while adding, "Beats/raises are now common, cash is good, and the product remains market-leading. Given some stability in the underlying market and cash optionality, we see investors warming to the new SWHC."