Market Overview

Smith & Wesson Earnings Preview: Another Strong Quarterly Profit Expected

Smith & Wesson Earnings Preview: Another Strong Quarterly Profit Expected

Smith & Wesson (NASDAQ: SWHC), shares of which are up more than 250 percent in the past year, is scheduled to report its second-quarter fiscal 2013 results Thursday, December 6, after the markets close. Investors will be looking to see whether per-share earnings will fall in line with the preliminary results released last month for the third quarter in a row with EPS above $0.20 per share.


Analysts on average predict that Smith & Wesson will report that revenue for the quarter rose about 46 percent year-over-year to $134.78 million. Its earnings per share (EPS) are expected to come to $0.24, up from $0.01 per share in the same quarter of last year. That consensus earnings estimate has risen in the 60 days from $0.21 per share, but analysts have underestimated the EPS for more than 10 quarters. The earnings beats were by more than 50 percent in the previous two quarters.

Smith & Wesson attributed record results in the first quarter to strong demand for its products, such as the newest military and police pistol, and to cost-cutting measures. Furthermore, the company boosted its full-year EPS outlook way above the consensus estimate. The share price rose about 20 percent in the week following the first-quarter report.

Looking ahead to the current quarter, which includes the presidential election and the holiday shopping season, the analysts' consensus forecast calls for EPS to more than double year-on-year on sales that are more than 27 percent higher. So far, full-year EPS are expected to about 55 percent higher, relative to the previous year, on a rise of more than 30 percent in revenues.

The Company

Smith & Wesson is a leading firearms manufacturer in the United States. Customers include gun enthusiasts, collectors, hunters, competitive shooters, law enforcement, security agencies and the military. It has a market capitalization near $690 million. The company was founded in 1837, is based in Springfield, Massachusetts, and James Debney has been the president and chief executive since September 2011.

Competitors include Sturm, Ruger & Co. (NYSE: RGR) and TASER International (NASDAQ: TASR). Both companies easily exceeded analysts' EPS expectations in their most recent quarterly reports.

During the three months that ended in October, a Smith & Wesson director bought 1,500 shares of the company's stock and the company filed with the SEC a plan to divest itself of its Nashville-based security solutions division.


The long-term EPS growth forecast is about 22 percent, and the return on equity is more than 39 percent. The price-to-earnings (P/E) ratio is greater than the industry average, but so is the operating margin. Note that short interest is almost 43 percent of the float, the highest it has been this year. Of the six analysts surveyed by Thomson/First Call who follow the stock, five recommend buying shares. They believe the stock has some room to run as their mean price target represents almost 15 percent potential upside. That target price would be a new multi-year high, a level shares have not seen since 2007.

Shares are up about 137 percent since the beginning of the year, including 15 percent higher than a month ago. The share price is above both the 200-day and 50-day moving averages. Over the past six months, the stock's performance has been in line with the competitors mentioned above, but it has outperformed the broader markets.


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