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US Government Softens Firearms Exports Rule: Stocks to Gain

Aparajita Dutta

The Trump administration announced some policy changes on Jan 17, which partially eased the U.S. export rules for firearms, including assault rifles and ammunition. This change comes much to the delight of investors as the U.S. firearms and ammunitions industry has not made noticeable progress over the past few years.

The latest move is thus projected to boost companies manufacturing firearms and ammunitions, along with others associated with the industry.

What’s the New Rule?

Per the recent announcement made by the Trump administration, the government is going to transfer control of some commercial firearm exports from the U.S. State Department to the Commerce Department. The amendment, which began under the Obama administration, is intended to lower costs for U.S. firearm makers such as American Outdoor Brands AOBC and Sturm, Ruger. This, in turn, will help U.S. firearm and ammunition manufacturers to undergo fewer registration requirements in order to obtain an export license.

However, as stated by Clarke Cooper, assistant secretary of the Bureau of Political-Military Affairs, “firearms and related articles that perform an inherently military function or provide the United States with a critical military or intelligence advantage will remain under State Department export licensing controls.”

Current Status of Firearms Industry

Firearms sales slumped markedly after President Trump was elected in 2016, as fears of gun control melted away with the administration’s vocal support of the gun industry. Afterall, Trump is a Republican endorsed by the National Rifle Association (NRA).

Nevertheless, the situation did not improve much even after a couple of years of this. While some analysts attributed the weakness to an absence of significant federal gun control legislation, another possible factor impacting the industry might have been sporadic shootouts across the nation that resulted in quite a few casualties.

Now, according to National Shooting Sports Foundation’s (NSSF) latest report, the U.S. firearm and ammunition industry contributed $52.1 billion to the U.S. economy in 2018, a mere rise of 1.4% from $51.4 billion a year ago. So, it’s not remarkable growth for this industry, which witnessed a massive 169% improvement in the 2008-2018 period.

Will the New Rule Benefit?    

The NSSF estimates that U.S. firearms exports could increase up to 20% under the new rules. However, a few other experts predict a comparatively smaller boost to the nation’s gun industry.

For instance, Jurgen Brauer, the chief economist of the Small Arms Analytics research group, earlier said that deregulatory export rules on implementation are likely to boost sales by 2% for American gun makers overseas.

The United States is already a significant exporter of firearms and related equipment, with over $759 million in deals notified to Congress in 2018, reflecting 12% annual growth, according to an analysis by the Security Assistance Monitor. However, procedural burden and costs incurred by domestic firearms and ammunitions exporters have been hampering their profits. Considering that, the latest legislation should magnify the U.S. firearms and ammunitions industry’s growth.

Stocks to Gain

Keeping in mind the above-mentioned discussion, we would like to draw the attention of investors to some stocks that are expected to benefit from the softened U.S. firearms export rule.

American Outdoor Brands Corporation, a manufacturer and seller of firearms and accessory products, has a portfolio comprising pistols, revolvers, rifles, guns, handcuffs and firearm-related products and accessories. The company delivered average positive earnings surprise of 9.07% in the last four quarters. Moreover, its Zacks Consensus Estimate for fiscal 2021 earnings indicates year-over-year growth of 43.2%, indicating notable growth for the company in the near term.

Vista Outdoor VSTO designs, develops and manufactures ammunition, primers, components and related equipment products. Its portfolio includes premium gun care products, as well as centerfire ammunition, rimfire ammunition, shotshell ammunition and reloading components. The company delivered average positive earnings surprise of 29.23% in the last four quarters. Moreover, its Zacks Consensus Estimate for fiscal 2021 earnings indicates year-over-year growth of 121.9%.

Sportsman’s Warehouse Holdings SPWH is an outdoor sporting goods retailer that helps customers in buying products like air guns, black powder muzzle loaders, handguns, rifles and shotguns. Its portfolio includes premium gun care products, as well as centerfire ammunition, rimfire ammunition, shotshell ammunition, reloading components. The company delivered average positive earnings surprise of 8.3% in the last two quarters. Moreover, its Zacks Consensus Estimate for fiscal 2021 indicates year-over-year growth of 21.7%.

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American Outdoor Brands Corporation (AOBC) : Free Stock Analysis Report
 
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Sportsman's Warehouse Holdings, Inc. (SPWH) : Free Stock Analysis Report
 
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