Sturm, Ruger makes firearms for the commercial sporting market in the U.S. Products include rifles, pistols, shotguns, and accessories. The company also makes steel alloy castings for commercial, sporting goods, and military customers.
RGR has beat the Zacks Consensus Estimate in six of the last six quarters, with the beats getting significantly larger in the last two quarters. Larger beats in both absolute and percentage terms.
The June 2011 quarter saw an $0.11 beat or 33% ahead of expectations and the September 2011 quarter witnessed a $0.16 beat or 40% ahead of expectations. In both instances, the stock moved higher by about 13%.
Gun sales reach record
The FBI reported that the number of background checks, even with a few days left in December, had already eclipsed the record set in the previous month. 1.5 million background checks indicated that many more firearms were headed to consumer hands. This is an indication that the broader market for RGR is strong.
A further data point comes courtesy of the company itself. It was holding a 'Million Gun Challenge to Benefit the NRA' where the company would donate one dollar for each firearm sold. In the quarter ending December 31, 2011 RGR stated it sold 315,100 and has donated a total of $871,200 through the first three quarters of the campaign.
RGR is trading at a small premium to the industry when looking at nearly every metric. We note that price to forward earnings of 17.9x is very palatable, especially compared to the industry average of 14x. The trailing earnings multiple of 21x compares less favorably than the 14x multiple for the industry.
With earnings estimates for 2012 moving from $1.42 in March 2011 to the current level of $2.21, an expansion of the earnings multiple is likely if the company continues to beat expectations.
RGR has three analysts following the company, and estimates have led stocks higher over the last year. A look at the price and consensus chart below shows a consistent trend of higher earnings expectations and a higher stock price. RGR is a Zacks #1 Rank (Strong Buy).