Armed with solid fiscal first quarter results, shares of Smith & Wesson Holding Corporation (SWHC) have advanced by more than 16% since its September 6 announcement.
With a penchant for beating quarterly earnings expectations, a 163.7% year-over-year growth in firearm backlog and a positive outlook for fiscal 2013, this Zacks #2 Rank (Buy) firearm manufacturer offers an attractive investment opportunity for growth-seeking investors.
Strong Start to Fiscal 2013
For its fiscal first quarter, the company earned 28 cents per share, surpassing the Zacks Consensus Estimate of 18 cents by 56%. Over the past four quarters, SWHC has an average surprise of nearly 85%.
Sales surged 48.3% to $136.0 million from $91.7 million a year ago. The growth was primarily attributable to strong sales of M&P polymer pistols and M&P modern sporting rifles.
Gross margin expanded to 37.7% of net sales from 28.9% last year. Sales volume expansion of polymer firearms positively impacted the gross profit margin.
Operating expenses declined to 14.7% of net sales from 22.9%.
The company continues to invest consistently in research and development (R&D) activities to develop new products. In the first quarter of fiscal 2013, the company spent $1.1 million on R&D versus $1.4 million in the prior-year period.
Positive Outlook for Fiscal 2013
Strong results in the fiscal first quarter prompted the company to revise its fiscal 2013 sales and GAAP earnings expectations. The company expects 2013 GAAP earnings between 85 cents and 90 cents per share with revenues of $530 million to $540 million.
Smith & Wesson expects sales for the second quarter between $130.0 million and $135.0 million, reflecting year-over-year growth of about 40%. GAAP earnings for the quarter are expected at 19 cents to 21 cents per share.
Earnings Momentum Advancing
For fiscal 2013, the Zacks Consensus Estimate is currently at 87 cents, up nearly 35.9% in the last 30 days based on 4 upward revisions out of 5 total estimates. This represents a year-over-year increase of 118.5%.
For fiscal 2014, the Zacks Consensus Estimate of 94 cents improved 27% over the same time frame as 2 of 3 estimates moved north. The estimate reflects a year-over-year increase of 7.9%.
Smith & Wesson shares are currently trading at a forward P/E multiple of 11.9x, a discount of 15.5% from the peer group average of 14.2x. The PEG ratio is 0.39 times, a substantial discount to 1.0 for a fairly priced stock.
The return on equity (ROE) of 39.0% is substantially higher than the peer group average of 5.5%.
The chart below reveals the full picture, with shares moving up gradually in the last twelve months. Following the first quarter release on September 6, shares have gained 16.2%.
Based in Springfield, Massachusetts, Smith & Wesson Holding Corporation was founded in 1852. The company manufactures, designs and supplies a large variety of fire arms and related items to its worldwide customers. The company has 1,346 full time employees and a market cap of $0.68 billion. The company competes with Sturm, Ruger & Company Inc. (RGR), among others.