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Is Sturm, Ruger (RGR) Set to Beat Again in Q1 Earnings?

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Sturm, Ruger & Company, Inc. (RGR - Free Report) is scheduled to release first-quarter 2017 financial results on May 8.

In the prior quarter, the company reported a positive earnings surprise of 21.98%. Moreover, Strum, Ruger outperformed the Zacks Consensus Estimate in the trailing four quarters with an average earnings surprise of 24.01%.

Let’s see how things are shaping up for the company prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Strum, Ruger is likely to beat earnings because it has the right combination of two key ingredients.

Zacks ESP: The company has an Earnings ESP of +5.10%. This is because the Most Accurate estimate stands at $1.03, higher than the Zacks Consensus Estimate of 98 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Strum, Ruger carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates.

Notably, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Meanwhile, Strum, Ruger’s combination of a Zacks Rank #3 and +5.10% ESP makes us reasonably certain of an earnings beat.

What’s Driving the Better-Than-Expected Earnings?

During the first quarter, Strum, Ruger repurchased a total of 1.1 million shares of its common stock for $53.4 million. This shows the company’s stable financial position. Moreover, it plans to invest $40 million in 2017, particularly in new product development. We believe that such investment strategy will be reflected in the upcoming first quarter results.

In recent times, management has observed many customers spending discretionary income on concealed carry products and modern sporting rifles. To benefit from the current situation, Strum, Ruger is shifting its focus to commercial sporting products. If the company manages to expand successfully in this business line, its benefit will get reflected in the yet-to-be-reported quarter’s results.

However, this change in customer behaviour might lead to a decline in demand for its existing product line in the near term, resulting in a more challenging sell-through environment. This, in turn, may hurt the company’s growth trajectory in the first quarter.

According to the FBI's National Instant Criminal Background Check System ("NICS"), first-quarter 2017’s firearm background checks dropped 12.6 % from the year-ago quarter’s equivalent figure. A drop in firearm background checks indicates a decline in demand for firearms. This could hurt sales growth for publicly traded gun manufacturers like Sturm Ruger, in the soon-to-be reported quarter.

The Zacks Consensus Estimate for first-quarter earnings for Sturm, Ruger is pegged at 98 cents a share, reflecting 19.01% year-over-year decline.

Other Stocks that Warrant a Look

Here are a few other stocks in the consumer discretionary space, which have the right combination of elements to post an earnings beat this quarter:

Deckers Outdoor Corporation (DECK - Free Report) is expected to report its quarterly results on May 25. The company has an Earnings ESP of +50.00% and a Zacks Rank #3.

Marriott International (MAR - Free Report) is expected to report quarterly results on May 8. The company has an Earnings ESP of +1.11% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Norwegian Cruise Line Holdings Ltd (NCLH - Free Report) is expected to report quarterly results on May 10. The company has an Earnings ESP of +2.70% and a Zacks Rank #3.

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