P/E ratio will not remain low, once the Q2 and Q3 earnings are published. Last year's earnings for comparable quarters were very strong due to sale of accessories. I am worried about the dropping profit and operating margins. I am also worried because Michael Fifer, who rarely gives guidance, gave negative guidance in his letter to shareholders. Nobody seems to have noticed this.
Chairman's letter is published on the Ruger home page, in the SEC filings section, dated May 5, 2014. There are two exhibits in the May 5 filing, and the second one is the Chairman's letter.
Ruger's line of credit is at LIBOR+,55%+2%=.53+.555+2.0=3.1%. So I agree that Ruger could borrow at 3.1%. However, they are not going to borrow, according to the Chairman's letter. They will use only the cash on hand of $50 million.
To purchase 10% of shares @$62 per share would require purchasing 1.94 million shares, expending $120 million. Ruger has only has enough to repurchase about 800,000 shares, or 4% of outstanding shares. This would not have a very dramatic effect on earnings.
I agree with you that $1.25 per quarter seems achievable.
Walgreens+Alliance Boots FY2016 Goals
Revenue $130 B
Operating Income(GAAP) $8.5-9.0 B
2013 Results for WAG+BOOTS+ABC
Revenue Op Income
20% of AmSrB $17.6----$0.2
TOTAL --------- $ 128.9-- $6.3
2014Q1 sell-through from distributors to retailers 514,2000--- 565,400, or +10%. That' s a pretty good comparison against a surge quarter in 2013.
DKS dropped 19% and ATK fell 16% after earnings. One or both of these companies is probably on sale, All ATK needs is to get a few defense contracts. People loved ATK at $155 per share, and now they hate it at $124. Forward earnings guidance of $11 per share, which is probably conservative, puts the P/E ratio at 11x.
As for DKS, all they need to do is to start selling handguns again, instead of hunting rifles. Everybody knows hunting is dying out in America, because of the shortage of suitable undeveloped land, but the self defense market is booming. How hard would it be for DKS to switch to semiautomatic pistols from rifles/
What is your projection for forward P/E? I estimate earnings will decline to of about $1.25 per share for the next three quarters, and 2014 EPS=$5 approximately. At $60 per share, P/E will be about 12x, using these estimates. This is still a good value, in the current environment of 2.5% 10-year Treasury yield.
I believe the best thing Ruger management could do for the stock price would be to redomicile to Europe. I do not believe Mr. Fifer would be enthusiastic about this, but perhaps a large shareholder could force him to consider it more intensely, in the same way Walgreens was pressured by large shareholders to redomicile out of Illinois.
Sig Sauer, based in Switzerland, or its corporate parent, L&O Holdings, might be a suitable Swiss firearms merger partner.
Compare metrics for Hillshire Brands and Allergan, two acquisition targets, with Ruger:
May 2014 NSSF-Adjusted NICS Background Checks Second Highest May on Record
The May 2014 NSSF-adjusted National Instant Criminal Background Check System (NICS) figure of 877,655 is the second highest May on record for the system, even with a decrease of 9.9 percent compared to the May 2013 NSSF-adjusted NICS figure of 974,457. For comparison, the unadjusted May 2014 NICS figure of 1,476,318 reflects a 3.6 percent increase from the unadjusted NICS figure of 1,424,450 in May 2013.
NSSF adj NICS
Scott Hamann said May adj NICS came in below expectations. That's the sort of claim he could make every month, since he never publishes "expectations" for adj NICS in advance. We'll see how he does with his second quarter revenue and earnings estimate.....
Perhaps the huge, new, Fidelity position in SWHC is pushing up its price. A few quarters ago, Fidelity wouldn't buy any firearms company. Now, they're in pretty deep.
Ruger still sells at a pretty low multiple of earnings, if we account for future growth. I estimate growth rate is probably 13% annually, based on EBITDA.
From the Q1 earnings release:
A summary of Q1 year-over-year growth follows:
Increase in estimated Ruger Units Sold from Distributors to Retailers
CEO sells shares because of U.S. tax law, which prevents corporations from deducting large salaries, greater than $1 million for CEO's. Therefore, CEO takes salary as stock, which is more favorably treated. Naturally, television personalities and pro athletes are permitted to take multimillion salaries. It's strictly political.
Why are you bashing the stock?
APD may have been quiet for a few months, because Mr. Ackman is "busy" orchestrating inversions for Walgreen to Switzerland, and Allergan to Canada. Do you suppose APD, domiciled in Delaware, might become another corporate inversion?
New CEO is a star. He is 69 years old, not 68, according to the proxy filing. At Rockwood, he focused on maximizing value per share, not growing the business just for the sake of empire building. He likes rising dividends, buybacks, and minimizes long-term debt, He liquidated seven. underperforming divisions, and realized cash for them far in excess of book value, and used the money to pay down long term debt.
Rockwood presently has a market cap of $5 billion. Here is the shareholder equity for ROC:
I'm pretty sure at APD he will be liquidating divisions, paying down debt, and returning cash to shareholders. Shareholders will become rich.
Do you think Mr. Seifi is going to redomicile APD out of the United States? A corporate inversion, to lower the corporate tax rate, would require the presence of another company, similar to Air Products, in Europe. or Canada which could be merged with APD.