Shares of Smith & Wesson Brands Inc. rallied Friday, after the gun maker reported another big profit beat and sales that more than doubled, as demand for firearms continued to surge to record levels.
The 168-year-old handgun and rifle maker reported late Thursday net income that jumped to $52.2 million, or 92 cents a share, from $1.3 million, or 2 cents a share, in the year-ago period.
“ ‘The research indicated that for those people who own firearms, the average number of firearms possessed was eight.’ ”
Excluding nonrecurring items, adjusted earnings per share of 93 cents beat the FactSet consensus of 63 cents.
Sales soared 118.7% to $248.7 million, above the FactSet consensus of $223 million.
The stock
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In a post-earnings conference call with analysts, Chief Executive Mark Smith said the “second consecutive record-breaking quarter” came as federal background checks, which he said are considered the best available proxy for consumer firearm demand, were 57.5% above levels seen in the same period a year ago.
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For the first 11 months of 2020, there have been 19.2 million background checks for gun purchases, the most for an 11-month period since the Federal Bureau of Investigation started recording data in 1998, Smith said.
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And based on firearm industry estimates provided by the National Shooting Sports Foundation, or NSSF, Smith & Wesson estimates that nearly 8 million Americans were first-time gun buyers.
That bodes very well for the company, given what it could mean about demand for guns over the longer term.
“In October, we conducted an attitude and usage study of over 1,200 law-abiding firearm owners with the goal of gaining a better understanding of today’s firearm consumer,” Smith said on the analyst call, according to a FactSet transcript. “The research indicated that for those people who own firearms, the average number of firearms possessed was eight.”
And NSSF research indicated that about one in four new gun owners went on to buy additional firearms at higher prices than their first purchase.
“Therefore, this expanded consumer base of new firearm owners represents a healthy long-term opportunity for the industry as a whole, but specifically for Smith & Wesson,” Smith said.
Analyst James Hardiman at Wedbush raised his stock price target to $18 from $17 after the results but reiterated the neutral rating he’s had on the company since March 2019. He said there is some concern that the results could be tempered going forward as supply is “very depleted” and could remain an issue in the coming quarters.
“Demand remains very strong, but Black Friday and the holiday shopping season have been held back this year due to a lack of inventory for the industry,” Hardiman wrote in a note to clients.
