This is our short term rating system that serves as a timeliness indicator for stocks over the next 1 to 3 months. How good is it? See rankings and related performance below.
|Zacks Rank||Definition||Annualized Return|
Zacks Rank Education - Learn more about the Zacks Rank
Zacks Rank Home - All Zacks Rank resources in one place
Zacks Premium - The only way to get access to the Zacks Rank
Over the last several months, there has been a lot of talk about banning certain types of guns. That raised to a fever pitch after the tragic events of Sandyhook in December of 2012. The following months saw a social outcry to limit gun sales and it also saw people that were on the fence about buying a gun do out a make a purchase.
It seems as though the growth in purchases of new guns is continuing as the company continues to see higher revenue numbers.
SWHC makes and sell guns. From handguns to sporting rifles to handcuffs, Smith & Wesson was founded in 1852 and is based in Springfield MA.
Good Earnings History
Looking to the earnings history, I see a stock that has beaten the number in each of the last 7 reports. The most recent quarter was a beat of $0.01, which translated into a positive earnings surprise of 2.3%. That was a decrease from the $0.05 beat reported for the January 2013 quarter, a 23.8% positive earnings surprise and a 55% positive earnings surprise posted in the July 2012 quarter.
Pre Announcement and Subsequent Move
On the evening of June 13, the company issued upside guidance of $0.44 compared to the Wall Street consensus estimate of $0.40, so a 10% surprise can be built into the most recent number. The other more surprising was the revenue guidance of $179M compared to the then consensus of $170M.
Prior to the announcement the stock closed at $9.30, but after the announcement the price was higher by 5.5%. Since the open on June 14, the stock has moved higher by about 8%. The combined move computes to more than 13% and the stringing along of the good news helped insulate shares from the recent downturn in the broader market.
Earnings Estimates Tick Higher
Estimates for FY2014 have been doing nothing but firing higher throughout the year. In January the Zacks Consensus Estimate was $0.93 where it stood for two months. An increase to $0.97 came in March, and that was followed by another big move to $1.04 in April. Following the most recent beat, estimates have jumped to $1.33 - and that is just what investors want to see.
The valuation picture for SWHC is a great one. It is not that often you find a company that consistently beats the earnings number and sees good growth AND trades at a discount to the industry average. The 8.3x trailing PE is almost half of the 16.4x industry average. The forward PE of 7.6x is less than half the industry average of 15.6x, so on both PE measures the company is trading at a significant discount to the industry average. The price to sales metric also shows a significant discount, but the price to book is the lone measure that has the company trading at a premium to the industry average.
The price and consensus chart the power of an improved outlook on a stock price. Starting at the end of 2011, the stock jolted higher as expectations for stronger earnings started to show up on analyst reports. The ride since has been volatile, but mostly up, with the stock moving from low single digits to double digits. With earnings expectations continuing to rise, the stock seems to be headed for new highs in the coming quarters.
Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.
Brian is also the editor of Breakout Growth Trader a trading service that focuses on small cap stocks and also carries a risk limiting strategy. Subscribers get daily emails along with buy, and sell alerts.
Follow Brian Bolan on twitter at @BBolan1
Like Brian Bolan on Facebook