American Outdoor Brands Corp AOBC the parent company of the 165-year-old Smith & Wesson firearms maker, aims to profit from a reduction in inventories among dealers who mistakenly thought that the election of Hillary Clinton would boost gun sales.
Aegis analyst Rommel Dionisio initiated coverage of the gunmaker with a Buy rating and a price target of $25. AOBC closed Monday at $18.78.
Long-Term Growth: Healthy
Dionisio said the company is in a good position to benefit from a normalization of dealer and distributor inventory within the next two to three months.
“Firearms manufacturers have seen several difficult quarters in a row, as retailer inventory inventories became bloated last year after dealers incorrectly forecasted a Clinton election win and resulting demand surge,” he said in an analyst note.
Women Driving First-Time Growth_________ Image Credit: By Rama - Own work, CC BY-SA 2.0 fr, via Wikimedia Commons
“Longer term, we expect the firearms industry to continue to display healthy long-term growth, with favorable consumer purchasing trends and potential loosening of gun control legislation,” he wrote. “Expect order patterns to pick up by this fall.”
Horace Smith and Daniel B. Wesson founded the company in 1852. In 2000, it made an agreement with President Bill Clinton to market “smart guns” that could only be used by the owner, and to institute a code of conduct for its dealers.
The National Rifle Association called for a boycott, almost putting Smith & Wesson out of business. In the mid-2000s, it was among several gunmakers who broadened their marketing campaigns to appeal to non-gun owners.
After acquiring a laser sight and toolmaker last year, the newly diversified company last November changed its iconic name to American Outdoor Brands. Among other things, it sells safes and leg irons.
“The firearms industry has been a lucrative one for well over a decade, growing on average at mid- to high-single digits annually,” Dionisio wrote.
“Given a wave of new firearms purchasers in the past several years, including women who now comprise roughly half of all first-time buyers, combined with the significant potential for loosening federal gun control laws given the Republican-led presidency and Congress, the firearms industry should see steady growth for years to come.”
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