This week, gun manufacturer Smith & Wesson Holding Corporation (NASDAQ:SWHC) announced fourth-quarter earnings that handily beat expectations, as customers purchased guns faster than the company could manufacture them. US citizens are increasingly worried about stricter gun control regulations and are purchasing firearms now, instead of waiting to see how new regulations will be drafted. More people buying guns means higher profits for Smith and Wesson.
Calls for gun control spark demand for firearms
Gun control has been a hot political issue this year following the Sandy Hook Elementary School shooting. Advocates of gun control measures want to place tighter restrictions on what type of guns can be distributed, and who can purchase these firearms. Opponents cite the second amendment (the right to bear arms), claiming that further restrictions on gun purchases infringe on their constitutional rights.
Gun manufacturers have been the primary beneficiary of the heated debate, as US citizens have been aggressively buying firearms. Gun buyers fear that new regulations will keep them from purchasing firearms in the future, so they are buying more guns now while they still can.
Smith & Wesson Holding Corporation (NASDAQ:SWHC) can’t even manufacture guns fast enough to keep up with the increased demand. The company beat earnings expectations for the fiscal fourth quarter ending April 30, but profits could have been even higher if the company had more guns to sell. The earnings press release stated that most of its product lines are sold out, and customers are placing orders for more guns, leading to growth in the company’s order backlog.
With so much demand, the primary challenge for Smith & Wesson Holding Corporation (NASDAQ:SWHC) is to grow it’s production capacity. The company is already expanding its manufacturing lines, and recently raised about $50 million which will be used to further grow its production capability.
Since the company already has a growing backlog of orders, and will be increasing its manufacturing capacity, I expect earnings to continue to climb over the next several quarters.
Other firearms companies are also seeing an increase in demand. Sturm, Ruger & Company (NYSE:RGR) is expected to grow earnings by 30% when it reports quarterly earnings next month. Over the past 90 days, analysts have increased their full year earnings estimates by 13.5% as sales increase.
Ammunition maker Olin Corporation (NYSE:OLN) is also seeing growth in its business as consumers buy bullets for their new guns. Analysts expect Olin to grow earnings by 15% this year, and the stock is trading at an attractive valuation of just 11 times this year’s expected earnings.
