Strong Gun Sales Still Support Stock Buybacks at Smith & Wesson

Smith & Wesson Holding Corp. (NASDAQ: SWHC) has been the beneficiary of very high gun demand for more than two full quarters now. Demand was already high, but the massacre at Sandy Hook and the gun control efforts of President Obama and Vice President Biden sent anyone who was thinking about wanting to buy a gun into overdrive. Apparently business is so strong and so much cash is coming in the door that S&W has decided to increase the price it is willing to pay to buy back its own shares.

After the close on Wednesday came news that Smith & Wesson has increased the purchase price to be paid in its previously announced fixed-price cash tender offer. The hike is 10%, from $10.00 per share to $11.00 per share for up to $75 million. As a result of today’s hike, the net result is that S&W is actually decreasing the maximum number of shares it is authorized to repurchase.

It was back on June 13, 2013 that Smith & Wesson’s Board of Directors approved the repurchase of up to $100 million in its own common stock. Up to $75 million worth of the stock was under a fixed-price issuer tender offer, and the remaining amount would either be handled through the open market or under negotiated transactions.

This new higher price of $11.00 per share represents a premium of approximately 18.3% to the closing price of $9.30 on June 13, 2013. The reason for the hike is that Smith & Wesson shares are now up to $10.62, so tendering the stock at $10.00 would actually be under the market. Smith & Wesson shares have traded in a 52-week range of $7.40 to $11.25 and Yahoo! Finance lists its current market cap at $683 million.

The gun business remains strong. While gun and ammunition inventories in stores remains low, most gun retailers have been restocked with at least a portion of what they used to carry. Back in December and January the frenzy was to the point that guns were scarce and ammunition was almost impossible to find.