Market Overview

Gun Stocks Affected By Tough Year-Over-Year Comparisons

Gun Stocks Affected By Tough Year-Over-Year Comparisons

The numbers for firearm background checks, though firing to an all time record in 2016, were found wanting in December. Data released by the FBI based on the National Instant Background Check System, or NICS, showed that 2,771,159 checks were made in December 2016 compared to 3,314,594 in December 2015, which saw a record high background checks.

Record 2016, December Softness

Even with the year-over-year decline in December, 2016 saw a record 27,538,673 background checks conducted compared to 23,141,970 done in 2015.

These numbers, in the FBI's own words, may not correlate to the number of firearms sold, although it sure is an indicative number. Checks may not conclude in a sale or alternatively one check, if found satisfactory, could lead to sales of more than one gun, as checks are done on purchaser and not on the guns a purchaser would want to buy.

Gun Stocks Recover After Wednesday's Retreat

Following the release of the data, shares of gun stocks such as Sturm Ruger & Company Inc (NYSE: RGR) and American Outdoor Brands Corp (NASDAQ: AOBC), formerly Smith & Wesson, came under selling pressure. On Wednesday, Sturm Ruger & Company shares declined 1.03 percent and American Outdoor Brands fell 2.84 percent. However, both stocks have staged a nice recovery on Thursday.

Tough Comparisons Hurt December

Delving into the numbers, D.A. Davidson noted adjusted NICS data was down 17.5 percent year-over-year to 1,843,991 in December, lapping San Bernardino shooting. This compares to a 16 percent increase in November and a 12.6 percent hike in October. Notwithstanding the softness, the 2016 numbers still represented the third strongest December performance on record.

The firm noted that a mini-surge occurred in December and January 2015 due to mass shootings in San Bernardino, California, and Roseburg, Oregon. Despite this, California still saw 76.7 percent year-over-year growth in 2016, as more stringent firearm and ammunition regulations are set to take effect in 2017.

Analysts Andrew Burns and Michael Kawamoto do not believe the December sluggishness is a long-term trend. According to the analysts, the NICS data is likely to remain challenged, as we lap the brief December-January San Bernardino surge. However, the analysts see sequential improvement, starting in February.

D.A. Davidson is of the view post-election firearms data points will ultimately move towards the long-term secular growth trend of mid-to-high single-digit annual growth. Citing views of retailers and manufacturers, D.A. Davidson said shooting sports participation growth remains robust.

Latest Ratings for RGR

Aug 2017Aegis CapitalInitiates Coverage OnBuy
Mar 2017WunderlichInitiates Coverage OnHold
Jun 2016BB&T CapitalDowngradesBuyHold

View More Analyst Ratings for RGR
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