The Gun Trade Gets Reloaded With Smith & Wesson Guidance

When industry leaders increase guidance, it usually has a ripple effect for its peers. The “gun trade” in equities is currently experiencing a halo effect after Smith & Wesson Holding Corp. (NASDAQ: SWHC) released updated guidance Wednesday morning. Despite recent FBI data on permit requests, one might wonder if industry growth is set to resume — maybe even boosted by the 2016 elections.

Smith & Wesson updated its guidance for its fourth quarter and 2015 fiscal year, which ends April 30. The gunmaker indicated that orders throughout its fourth quarter have been stronger than originally anticipated.

For the fourth quarter, the company expects net sales in the range of $175 million to $179 million and earnings per share (EPS) to fall between $0.39 and $0.41. Thomson Reuters consensus estimates are $0.26 in EPS on $164.62 million in revenue.

For the full fiscal year, Smith & Wesson expects net sales between $546 million and $550 million and an EPS in the range of $0.96 to $0.98. The consensus estimates call for EPS of $0.77 and $535.53 million in revenue.

However, this is not just about Smith & Wesson. It has a broader application across the gun market. Sturm, Ruger & Co. Inc. (NYSE: RGR) saw a noticeable uptick in its shares on news that Smith & Wesson had updated guidance, as did Vista Outdoor Inc. (NYSE: VSTO). So far, all these stocks are up at least 16% year to date.

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The National Instant Criminal Background Check System (NICS) — regularly released by the FBI — for firearm background checks spiked in late 2012, signaling increased gun buying at the time. This held at an elevated level for a few months into 2013, but shortly after that gun sales cratered, signaled by a significant drop in background checks.

Only a couple of months in 2014 showed some growth in firearm background checks. It was not until this guidance was updated that an increase in actual gun sales was revealed.

Note that NICS does not represent the number of firearms sold. Based on varying state laws and purchase scenarios, a one-to-one correlation cannot be made between a firearm background check and a firearm sale. However, it is highly probable that as firearm background checks increase or decrease a similar effect is seen in firearm sales.

Wednesday midday, shares of Smith & Wesson were up 13.3%, at $14.73 on a 52-week trading range of $9.03 to $17.28. The stock has a consensus analyst price target of $15.50. Smith & Wesson is up 37% year to date.

Ruger shares were up 9.8% to $53.79. The consensus price target is $46.00, and the 52-week trading range is $33.60 to $69.19. Ruger shares are up 42% year to date.

Shares of Vista were up 2.3% at $44.89. The consensus analyst price target is $47.33. The post-IPO trading range is $37.00 to $46.56. Shares of Vista are up 16% year to date.

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