Smith & Wesson Holding Corporation is scheduled to report fourth-quarter fiscal 2016 results after the market closes on Jun 16. The gun maker has an impressive earnings history so far. It has beaten estimates in all of the last four quarters, delivering an average positive surprise of 35.73%. Let’s see how things are shaping up for this quarter.
 

Factors at Play

Smith & Wesson is a leading firearm manufacturer and designer, delivering a broad portfolio of quality firearms, related products and training to the global military, law enforcement and consumer markets. The company’s online retail segment also sells firearm accessories, branded products, apparel and related shooting supplies.

The FBI's National Instant Criminal Background Check System (“NICS”) showed a 30.4% year-over-year uptick in permit applications in the three-month period between Feb 2016 and Apr 2016. Though one cannot draw a one-to-one co-relation between the NICS report and the number of firearms sold, any upward or downward movement in firearm background checks is likely to have a proportional impact on firearm sales.

On the fiscal third-quarter earnings call, Smith & Wesson Holding raised its fiscal 2016 earnings guidance on solid sales growth. For the fourth quarter, the company expects revenues in the range of $210 million to $215 million, with the midpoint representing a 17.4% improvement from the year-ago quarter figure of $181 million. Non-GAAP earnings per share are expected in the 51–53 cents band, up 15.6% at the midpoint from 45 cents earned in the prior-year quarter.

Gun control has become an important political issue in the U.S. once again due to the sharp rise in terror activities. President Obama’s stand on stricter firearm regulations led to a sudden increase in gun and ammunition sales in the recent past. This trend may continue in the to-be-reported quarter as well. However, if firearm regulations are tightened after all, the surge in gun sales will not be a long-term growth driver.

Moreover, Smith & Wesson faces stiff competition from other firearm companies like Sturm, Ruger & Company (RGR Quick QuoteRGR - Free Report) and Vista Outdoor (VSTO Quick QuoteVSTO - Free Report) . Its competitors may offer more extensive or specialized products, which could hurt the company’s financial performance.

What Our Model Indicates

Our proven model does not conclusively show that Smith & Wesson is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. But that is not the case here, as you will see below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +5.56%. This is because the Most Accurate estimate stands at 57 cents, while the Zacks Consensus Estimate is pegged lower at 54 cents.

Zacks Rank: Smith & Wesson has Zacks Rank #5 (Strong Sell). As it is, we caution against stocks with a Zacks Ranks #4 or #5 (Sell-rated stocks) going into the earnings announcement.

Peer Releases

Sturm, Ruger & Company, Inc.’s first-quarter 2016 earnings of $1.21 per share surpassed the Zacks Consensus Estimate of 96 cents by 26%. Earnings also surged 49.4% from 81 cents earned in the year-ago quarter on higher sales.

Pool Corp.’s (POOL Quick QuotePOOL - Free Report) first-quarter earnings of 38 cents per share surpassed the Zacks Consensus Estimate of 25 cents by a wide 52%. Earnings surged 100% from the prior-year quarter figure of 19 cents. The improvement was driven by growth in sales and gross profits, partially offset by unfavorable foreign currency fluctuations.

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