DA Davidson: Underlying Firearms Demand Remains At Near-Record Levels

The underlying demand for firearms remains near record levels, according to a DA Davidson report on May criminal background check numbers. 

Citing the data provided by the FBI, the firm said that adjusted firearms background checks, excluding permit checks and rechecks, rose 6.4 percent year over year. 

A Stabilizing Firearms Market

The number represents the highest May data on record, said analysts Andrew Burns and Michael Kawamoto. Federal background checks were up 2.9 percent in the second quarter of 2017 compared to a 10.8-percent drop in the first quarter.

The year-over-year increase in adjusted background checks in May supports DA Davidson's view that the firearms market is stabilizing after a post-election downturn. Firearm pricing promotions and a strong underlying demand from a growing participation base should support current demand, Burns and Kawamoto said.

Data To Show Normalized Trend In 2018

The firm cautioned that monthly data is likely to be volatile, given the seasonally light summer months and the comparison against the Orlando shooting in June 2016 and the presidential election in November 2016. The firm expects data from the National Instant Criminal Background Check System to reflect a more normalized long-term growth trend going into 2018.

Cabelas, Sportsman's Warehouse Trending Above National Average

Using region-specific data pertaining to the markets of Cabelas Inc CAB and Sportsman's Warehouse Holdings Inc SPWH, the firm said adjusted NICS data rose 5.9 percent for the former and 5.3 percent for the latter.

Taking actual and planned store openings as a proxy for competitive dynamics, the Davidson analysts said Cabelas opened two locations in Wilmington, North Carolina and Morgantown, West Virginia, while two openings scheduled for 2017 have been pushed into 2018.

The firm pointed to Camping World Holdings Inc CWH's successful Gander Mountain bid and said complete inventory liquidation sales have commenced. Citing the recent tweets from the company's CEO Marcus Lemonis, the analysts said the company might keep as many as 75 stores open under the Gander Outdoors nameplate.

For Cabelas, DA Davidson has a Neutral rating and a $61.50 price target, and for Sportsman's Warehouse, the firm has a Buy rating and a $8 price target.

"We believe SPWH's growth prospects justify a premium high-growth retailer valuation and that the shares can appreciate with earnings growth," the Davidson analysts said. 

At Time Of Writing

• Cabelas shares were up 0.02 percent at $53.51.
• Sportsman's Wearhouse was tumbling 5.03 percent to $5.95.
American Outdoor Brands Corp AOBC was surging up 3.77 percent to $23.94.
Sturm Ruger & Company Inc RGR shares were up 2.69 percent to $66.85.

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Posted In: Andrew BurnsDA DavidsonMarcus LemonisMichael KawamotoAnalyst ColorLong IdeasNewsFuturesPoliticsReiterationTopicsMarketsAnalyst RatingsMoversTrading IdeasGeneral