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Bear of the Day: Vista Outdoor (VSTO)

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Vista Outdoor Inc. (VSTO - Free Report) is feeling the sting of the Trump presidency as gun and gun ammunition sales slowed after the election. This Zacks Rank #5 (Strong Sell) just warned on its fiscal year.

Vista Outdoor makes products for the sports and recreation markets. It has two segments: Outdoor Products and Shooting Sports.

In Outdoor Products, it makes hydration solutions, outdoor cooking solutions, optics and eyewear, including binoculars and laser rangefinders as well as trail cameras, game calls, reloading equipment, targets, safety and protective eyewear and stand up paddleboards and accessories.

In Shooting Sports it designs and makes ammunition, long guns and related equipment for hunters and sport-shooting enthusiasts as well as federal and local law enforcement agencies and the military. It makes pistols, rifles, rimfire, shotshell ammunition, primers, centerfire rifles, rimfire rifles, shotguns and range systems.

Its products are sold at retail stores and distributors across North America.

The Obama Gun Trade is Over

President Obama's election in 2008 created a new golden age for the gun makers as gun sales spiked to all time highs and, with some ups and downs, mainly held near the record high throughout the 8 years of the Obama Administration.

Sales also spiked heading into the November election on worries that Hillary Clinton would win the election and would impose further gun control legislation.

But Donald Trump won instead, and, apparently that has been a bad event for the gun and ammunition makers.

In its Feb 9 fiscal third quarter press release, Vista Outdoor warned on gun sales.

"The challenging retail environment we experienced in our first and second quarters worsened in our third quarter following a slow hunting season and the national elections. This resulted in the need for increased promotional activity to support sales and maintain market share," said Vista Outdoor Chairman and CEO Mark DeYoung.

"We have also seen increased inventory in our retail and wholesale channels."

As a result, it took an impairment charge in its hunting and shooting accessories unit in the quarter.

Warned on the Full Year

Given the tough environment, Vista Outdoor also warned about the full year results.

The tough market conditions actually accelerated in the fiscal third quarter. It expects full year gross margins to be the same as the third quarter results, which weren't good.

It also expects the pressures it faced in the last two quarters of fiscal 2017 to extend into fiscal 2018 but it will give formal 2018 guidance at its May earnings call.

Analysts were already negative on the company with 4 estimates cut in the last week.

The Zacks Consensus Estimate for fiscal 2017 had fallen to $2.43 from $2.68 in that time.

But the company just gave guidance of $1.95 to $2.10 so look for further estimate cuts.

Shares Plunged

The stock was down nearly 20% on the day of the third quarter results and warning. It's trading at just 10x forward earnings now.



But with those estimates still to be cut further, it's not as cheap as it appears.

And the company is acknowledging that fiscal 2018 is going to be tough as well.

If you're an investor looking to invest in the gun makers, it seems unlikely that any of them are going to be able to escape the rising gun inventory and the change in sentiment. The urgency to buy a gun because regulations may change is no longer there under the Trump Administration.

For that reason, I would also stay away from Strum Ruger & Company (RGR - Free Report) and American Outdoor Brands Corp. , which was formerly named Smith & Wesson. Neither has reported earnings yet. They are both Zacks Rank #3 (Holds).

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