Gun bans seem to be good for gun sales, as evident in the results of two of the biggest gun manufacturers that just came out. As those who support the 2nd Amendment fear politicians trying to limit their rights, they go out and buy guns ahead of a potential ban. Even the threat of a ban, as is the case this time, significantly boosts sales.
Sturm up those sales
Sturm, Ruger & Company (NYSE:RGR) posted earnings that beat estimates, with revenue coming in at $179.5 million beating estimates for $155 million and was up 50% year over year. Net income was up 79% y-o-y to $32.3 million ($1.63 a share) from $18 million (91 cents a share). In after hours trading Sturm, Ruger & Company (NYSE:RGR) was up 6.5% as investors had underestimated the impact of Washington rhetoric on gun owners.
Sturm, Ruger & Company (NYSE:RGR) is a big gun manufacturer in the US, and has a market cap of $1 billion. Sturm, Ruger & Company (NYSE:RGR) pays out a 4% dividend and trades at a PE (TTM) of 13. Sturm, Ruger & Company (NYSE:RGR)’s dividend is up big from last year, with the 2012 Q1 dividend being 21 cents, much smaller than the 2013 Q2 dividend of 49 cents.
While Sturm, Ruger & Company (NYSE:RGR) has a strong dividend yield and no debt on its balance sheet, investors are expecting EPS to fall next year. That drop in EPS makes me sour on the stock for the time being, even if the 2014 election cycle prompts more political rhetoric which could prompt more sales.There is a better gun manufacturer out there for you to invest in.
Revolvers seem to be popular
Smith & Wesson Holding Corp (NASDAQ:SWHC) posted earnings with guidance that was much higher than expected. Smith & Wesson Holding Corp (NASDAQ:SWHC) posted a revenue increase of 38% to $178.7 million and earnings of $25.2 million, much higher than the $12.5 million posted last year. Gross margin’s were also up due to larger sales volumes, rising to 38.3% from 36.1%.
Going forward, Smith & Wesson Holding Corp (NASDAQ:SWHC) guided for an EPS of $1.30 to $1.35 on revenue of $605-$615 million, much higher than the $1.18 EPS on $590 million in revenue expected. Stronger sales will result in better margins and much higher profits as the profit per gun rises, and more guns are sold. Even though Smith & Wesson Holding Corp (NASDAQ:SWHC) pays out no dividend, it has a PE (trailing twelve months) of 10 and is a good buy for the surge in demand.
Smith & Wesson Holding Corp (NASDAQ:SWHC) is expected to keep growing, even as the demand for firearms and accessories cools off, with EPS growth in 2014 expected to be 7%. But with rising margins and an increase in its guidance, that number may get closer to 10%. 10% growth would merit a higher PE than 10 and would push Smith & Wesson Holding Corp (NASDAQ:SWHC)’s stock price up.
The middle man
Another benefit Cabelas Inc (NYSE:CAB) has, is an unexpected one: the next movie in the Hunger Games series comes out this fall, which last time prompted a pick up in archery. If the Hunger Games is a success, then I would expect archery sales to pick up and I would expect gun sales to beat Wall Street estimates, just as it did for Sturm Ruger and Smith & Wesson. If this holds to be true there is one more in the Hunger Games trilogy which would boost demand for archery items in few years as well.