Wunderlich Highlights 'Another Upside Surprise' From Smith & Wesson

Smith & Wesson Holding Corp SWHC reported another quarter of upside surprise for 4Q, while guiding to 1Q and FY17 well ahead of the consensus.

Wunderlich’s Rommel Dionisio maintains a Buy rating on the company, with a price target of $32.

Upside Surprise

Dionisio expressed surprise regarding the above-consensus guidance, especially “for a company which has recently under-promised and over-delivered to a significant degree.”

The analyst explained that the 4Q upside was driven by the recent successful new firearm product introductions, robust growth in recent acquired accessories business and better-than-anticipated gross margins.

These factors are expected to help carry the strong fundamental momentum into FY17.

Related Link: Sturm Ruger Outperforming Smith & Wesson, Keeps History Of Outperformance In Contact

For 4Q, Smith & Wesson reported its revenue and EPS meaningfully above the consensus expectations.

Robust consumer demand, along with the recent product launches, drove better-than-expected sales growth.

Dionisio believes the company’s impressive margin performance reflected greater fixed cost absorption from increased revenue and production volume, favorable product mix shift, and reduced promotions and discounting.”

Near-Term Catalysts

The FY17 and 1Q17 guidance provided by management included revenue and GAAP EPS significantly above the consensus forecasts.

Dionisio expects two potential near-term catalysts for the stock. “First, the U.S. Army is expected to select three finalists for its landmark handgun contract sometime around August, and we view S&W as the potential front-runner for this contract,” the analyst said.

Secondly, the firearms market is likely to see another re-acceleration in demand following the incident in Orlando.