Smith & Wesson
announced a strong quarter back on June 13, and then beat higher
guidance on June 24. It is a Zacks Rank #1 (Strong Buy).
It is the Bull of the Day.
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
SWHC makes and sell guns. From handguns to sporting rifles to
handcuffs, Smith & Wesson was founded in 1852 and is based in
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
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
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
a risk limiting strategy. Subscribers get daily emails along with
buy, and sell alerts.
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