U.S. Markets closed

SWHC Hits 52-Week High

Zacks Equity Research

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).

Read the Full Research Report on ATK
Read the Full Research Report on RGR
Read the Full Research Report on SWHC
Read the Full Research Report on ELY

Zacks Investment Research