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Is Corporate America's Action Weighing on Gun Stocks?

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Amid the ongoing debate followed by the strongest push in years for gun control, comes the news of another shootout at a Waffle House restaurant in Nashville on Sunday that killed four people and left another four injured. Since the mass shootout at a high school in Florida on Feb 17, which killed 17 people, financial institutions have been taking serious steps by reviewing and making changes in their business relationship with gun manufacturers and retailers.

Gun stocks have been on a decline ever since President Donald Trump took office in January 2017. And despite the mounting concerns, it’s quite unlikely that the Trump administration will initiate stricter actions on the firearms industry given that Republicans are endorsed by the National Rifle Association (NRA). Given this scenario, Corporate America’s voluntary actions to disassociate itself from the gun industry are particularly noteworthy.

Financial institutions as well as a number of retailers, which have come up with new restrictions on sale of guns, have created significant pressure on the gun industry. But have gun stocks gained, as they usually do, in the wake of these shootings and corporate action?

Corporate America Pushes for Gun Control

The gun industry has been witnessing a sharp decline in both sales and profits since the election of Trump in 2016. So much so, that even Trump hinted at tightening background checks for guns in response to Florida massacre. Incidentally, more than half a dozen gunmakers such as Sturm, Ruger & Company, Inc.’s (RGR - Free Report) , Vista Outdoors Inc. (VSTO - Free Report) and American Outdoor Brands Corporation (AOBC - Free Report) produce assault-style rifles.

Since then, there has been growing concern over gun control that has been supported by financial firms that have been reviewing their ties with the firearms industry and the NRA. And this has already made some financial companies act seriously toward the gun lobby. Citigroup Inc. (C - Free Report) became the first major Wall Street bank to announce changes relating to how it will conduct business with gun retailers and introduced restrictions on the sale of firearms for new retail-sector clients.

Moreover, BlackRock, Inc. (BLK - Free Report) recently announced the launch of new funds and index-tracking products that exclude gun manufacturers and retailers. This means that retailers like Dick’s Sporting Goods, Inc. (DKS - Free Report) , which sells guns along with a wide range of sports gear, and Walmart, Inc. (WMT - Free Report) will no longer be part of its newly launched funds. Dick’s Sporting has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Understandably, Corporate America is taking its most aggressive measures toward gun control in years. Bank of America Corporation (BAC - Free Report) is the latest to join forces with other financial institutions. The company recently announced that it would stop financing makers of military-style firearms for civilian use.

Retailers, Financial Institutes Raise Gunmakers’ Worry

It’s not only the financial institutions but gun retailers also have been voicing their concerns over responsible production and selling of guns. Dick’s Sporting in March came up with a new policy against selling guns to people under 21 years and against selling assault-style guns. This was followed by The Kroger Co (KR - Free Report) , which announced that it would be exiting the firearms business.

This certainly has made gunmakers in the United States wary. Although the Florida shooting immediately saw Corporate America taking aggressive measures to review its ties with gun manufacturers and the NRA, shares of gun manufacturers continued to decline.

Increased measures are being taken by financial companies and retailers have put gun manufacturers under pressure. Moreover, Remington Resources Inc. has filed for bankruptcy, while Slide Fire Solutions, the company that created the bump stock, is shutting down its site on May 20. Understandably, the aggressive measures taken by retailers and financial institutes have increased tension among gun manufacturers.

Summing Up

The general trend is that gun stocks rise on the assumption of stricter gun control measures. However, that didn’t happen this time around. This is because people tend to buy more firearms on fears of restrictions. However, this time, concerns for gun control didn’t come from the government, which is more likely, given that the Republicans are endorsed by the NRA, but from financial institutes, retailers and individuals. The recent shooting in Nashville is only likely to escalate the worries of gun manufacturers and increased pressure for gun control might make them feel the heat in the days to come.

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