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President Obama has been nicknamed the #1 gun salesman in history. Ever since he took over the office of president 4 years ago, gun and ammo sales have gone through the roof. Economic fear and policy uncertainty of the future is helping to drive sales across the board and expand industry sales in a big way. With Obama re-elected to another 4 years, expect this trend to only continue for the foreseeable future.

With so few gun & ammo manufacturers being public, and few new competitors emerging, individual companies such as Smith & Wesson (SWHC) and Sturm, Ruger & Co. (RGR) have been making a fortune the last 4 years and are well positioned to continue to do so. SWHC reports this Thursday in after hours, and I fully expect a great report. One risk I see with SWHC at any moment is that the share price has already more than tripled this year so there are a lot of potential profit takers in the stock. Also, if Obama or Congress starts to propose new gun regulation that potentially hurts the industry, stocks like SWHC would likely fall on the news. Despite the risks, here's 5 reasons to be bullish ahead of the earnings report after hours December 6:

(1) Preliminary Results

SWHC pre-announced estimated sales of $136 million, up 48% from a year ago, and earnings of .23 to .24, up from .01 and above guidance of .19 to .21 per share given in September. This should bring their tangible shareholder equity over $140 million, and in a very healthy financial position, possibly the largest in its history and certainly in its 10 year history. I wouldn't be shocked if they start a small dividend and/or stock buyback program soon.

(2) Backlog

At July 31, 2012, firearm backlog was $392.4 million. Backing out $136 million in sales for the quarter, that means backlog at the end of October 31, 2012 should be at a bare absolute minimum of $256.4 million and that would be if they got zero new orders in the quarter (which is highly doubtful, therefore backlog reported will be much higher). According to the company's 10K filing, "..backlog consists of orders for which purchase orders have been received and which are generally scheduled for shipment within six months." SWHC is guided on November 19 for $530 million to $540 million in sales for the fiscal year which implies $258 to $268 million for the 2nd half of the year. Based on their own claim to fill backlog within six months, SWHC appears to be guiding ultra conservatively and should easily beat their own guidance by a wide margin. Again.

(3) Black Friday

FBI background checks were at record levels on Black Friday, up 20% from the previous record set last year on the same day. In fact, the FBI call center was so overwhelmed with calls, that they had two outages that day. Gun sales are being reported across the country to be exploding this holiday season. SWHC gave their most recent fiscal year guidance update before Black Friday. Expect that they will raise guidance accordingly. Reported backlog should be up significantly.

(4) New Product Line M&P

Apart from industry-wide success, SWHC has been quite successful in its own right with the launch of their M&P gun line. Although SWHC didn't give exact numbers in its last earnings PR, its CEO commented "Our newest M&P pistol, the Shield™, continues to be highly favored and sought after by consumers." Do a simple Google search looking for reviews, and one will notice the internet is saturated with glowing positive reviews on this latest product from SWHC with negative reviews hard to come by. One article mentions "The M&P line is S&W's biggest-selling product and has been a huge success in the law enforcement market in particular." As we've all seen with Taser (TASR), if law enforcement blesses your weapon, then its sales are going to have staying power.

(5) Other Weapon Defense Reports

Taser reported results for their quarter that blew away the street, along with a share buyback program. TASR gave very upbeat comments about the environment and law enforcement spending on weapons in general sending shares to new multi-year highs.

Sturm, Ruger & Co. likewise reported surprisingly astounding results with a 61% increase in earnings and a 47% increase in sales. Less than 3 weeks later RGR declared an eye-popping special dividend of $4.50 per share. While it's true that there may have been future tax considerations that played a role in the decision to declare such a large dividend, it's an indication of confidence in a positive, improving operating environment which bodes well for SWHC.

Overall, there is a fundamentally-driven bull market for guns and ammos with few signs of slowing down any time soon. All indications point to a superb quarter for SWHC last quarter and, more importantly, excellent times ahead that should continue to "surprise" the street and drive shares higher.

Source: 5 Reasons To Be Bullish On Smith & Wesson Ahead Of Earnings