On Dec 30, 2013, the shares of Smith & Wesson Holding Corp. (SWHC) hit a 52-week high of $13.46. Smith & Wesson has registered positive earnings surprises in the last four quarters, with an average beat of 17.65%.
The second quarter fiscal 2014 results of this leading U.S. firearm manufacturer surpassed our expectation. The strong performance was attributable to a favorable product mix and manufacturing efficiencies.
Second quarter fiscal 2014 earnings of 28 cents surpassed the Zacks Consensus Estimate and the year-ago figure by 33.3% and 16.7% respectively. The upside came primarily on the back of higher demand for head guns.
Smith & Wesson has plans to upgrade the Houlton, Maine facility into a highly efficient, dedicated, state-of-the-art machining center. This will increase operating efficiency and lower operating costs, thereby boosting the company’s margins.
Stable performance enables Smith & Wesson to reward its shareholders through share repurchases. The company bought back shares worth $100 million and also authorized a $15 million buyback. The solid performance of the company over the last twelve months is also reflected in its traded price. Smith & Wesson’s share price closed at $13.46 on Dec 30, reflecting a gain of 59.5% over the twelve-month period.
The present valuation of the company in comparison to its peers also makes it attractive. The forward P/E multiple of the company is 9.79% reflecting a discount of 43.4% from its peer group average of 17.31%. Return on Equity of the company is 54.3%, substantially higher than the peer group average of 10.4%.
The Zacks Consensus Estimate for fiscal 2014 increased 1.5% to $1.35 in the last 30 days, reflecting year-over-year growth of 10.66%. For fiscal 2015 the consensus moved up 1.5% to $1.35 in the aforesaid period. We expect long-term earnings growth of the company to be 14.0%.
Smith & Wesson Holding currently holds a Zacks Rank #1 (Strong Buy). Other players in the industry, which look attractive at current levels, include Callaway Golf Co. (ELY), Sturm, Ruger & Co. Inc. (RGR) and Alliant Techsystems Inc. (ATK). Callaway Golf and Sturm, Ruger & Co. carry a Zacks Rank #1 (Strong Buy) while Alliant Techsystems holds a Zacks Rank #2 (Buy).