Olin Corporation (OLN): Arms Manufacturers Benefit from Political Turmoil

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In a political environment focused on gun control in the aftermath of the Sandy Hook massacre last November, gun owners have shown their opposition to reform with their pocketbooks. At both the state and federal level, there are bills banning assault weapons, demanding universal background checks, and limiting magazine capacity to ten rounds or less. Many gun owners see these bills as an encroachment to their second amendment rights. With the NRA on the offensive, many gun owners are expanding their personal gun collections as a sign of rebellion against anti-gun advocates. Since the start of the gun control discussion late last year, the demand for firearms has skyrocketed. Consequently, arms manufacturers like Olin Corporation (NYSE:OLN), Smith & Wesson Holding Corporation (NASDAQ:SWHC), and Sturm, Ruger & Company (NYSE:RGR) are reaping the benefits of this political turmoil with record-breaking sales.

Olin Corporation (NYSE:OLN)

Olin Corporation, a Virginia corporation responsible for Chlor Alkali Products, Chemical Distribution and Winchester, has seen it’s Winchester segment perform extremely well in 2013. So well, in fact, that this past quarter it had record-breaking quarterly earnings. Compared to the first quarter last year, Winchester sales increased by $40.5 million, or 27%. Commercial firearm sales are responsible for this record-breaking growth, with a backlog of approximately $640 million, including a 175% increase in military and law enforcement backlog due to concerns over the rapid increase in commercial growth. As of April 26, 2013, Olin Corporation (NYSE:OLN) does not believe this commercial demand will be decreasing any time soon. In fact, Olin’s stock price has increased steadily by 28.85% from $19 to $25. With an P/E of 13.21, while the chemical industry average P/E is 9.29, Olin is anticipated to have higher than average growth mostly due to the Winchester brand.

Smith & Wesson Holding Corporation (NASDAQ:SWHC), a Massachusetts company known for its revolvers and assault rifles, has also benefited from increased commercial activity stemming from the discussions on comprehensive gun control legislation. This past quarter has seen an increase of $38.1 million, or a 38.8% increase in revenue, compared to last year’s third quarter. This quarter has been so successful that the company has reached capacity in supplying firearms to distributors and retailers. Like Olin Corporation (NYSE:OLN), Smith & Wesson has a record breaking backlog of $667.8 million. With an Aerospace/Defense Products & Services industry average P/E of 22.34, Smith & Wesson is undervalued. We can see from the 46% increase in stock price from $6.74 to $9.09 over the past year that this company is on the rise.

Sturm, Ruger & Company (NYSE:RGR), a firearm manufacturer known as Ruger, has seen a 53% increase in earnings per share since the first quarter of 2012, brought about by a 39% increase in net sales. 2013 has been treating Ruger well, considering about 30% of $535 million in sales over the last four quarters came from this past quarter ending on March 30, 2013. In the past year, Ruger has increased its stock prices by 25% or $10 per share. Immediately following the Sandy Hook tragedy, Ruger suffered a 20 point decrease in share price; however since then Ruger has appeared to be steadily improving. This increase makes Ruger a good long term investment. Like Smith & Wesson Holding Corporation (NASDAQ:SWHC), Ruger is undervalued with a P/E of 12.65 with an Aerospace/Defense Products & Services industry average P/E of 22.34.

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