TTAG’s already reported that the U.S. firearms industry may be looking at a serious glut. Their all-guns-blazing drive to capitalize on the post-Obama/CCW sales surge could make them victims of their own success; pushing down prices and cutting profits. According to marketwatch.com, Keybanc Capital Markets’ Scott Hamann doesn’t quite see it that way. He’s pessimistic for other reasons: “Given the significant outperformance of the industry compared to the broader market, coupled with what we believe to be close to peak near-term retail demand trends, we believe further upside in the stocks could be limited and the risk/reward dynamic is no longer compelling.” In other words, demand will slow. And so . . .
KeyBanc subsequently cut its recommendation on Smith & Wesson to hold from buy. The stock fell 10% to $8.72.
Sturm Ruger was cut to underweight from hold and given a price target of $40 a share, $6 below where it’s trading midday Wednesday.
Bad news for shareholders, but a minor ding in comparison to their stocks’ recent rise. Year-on year, Smith’s revenue rose 28 percent (to $129.8m) in the fiscal fourth quarter. In its recently released second quarter report, Sturm Ruger’s reported revenue increased by 50 percent (to $119.6m).
Despite the aforementioned legal liberalization, making it easier for old and new gun buyers to obtain a permit to carry a concealed weapon, Scott Hamann thinks the party will soon be over.
While we believe the recent momentum in the [FBI’s National Instant Criminal Background Checks] has been impressive thus far in 2012 and accelerating since the April slowdown, we believe trends could potentially be near peak levels, particularly as we more closely approach the November presidential election and enter a period of more difficult comparisons.
I think Hamann’s hinting that a Romney victory would put the brakes on firearms sales, as politically-aware gun owners chill on the whole gun grabbing front. I reckon that’s not wrong, although concealed carry and gun culture 2.0 could take up the slack.
One thing’s for sure: if Obama does get reelected there will be another surge. There’s a strong feeling amongst firearms owners—promoted heavily by the NRA—that a second term Obama would be a president unchained, ready, willing and able to implement a gun control agenda via Executive Order.
I don’t see that happening but what do I know? Meanwhile, Rick Smith at The Motley Fool sees post-Aurora calls for gun control as an opportunity for investors, counseling his readers to BUY! Stocks, not guns (with or without stocks).
Four weapons in particular are likely to prove hot items for regulators and gun buyers alike: the Smith & Wesson M&P 15 semiautomatic rifle, Remington’s 870 12-gauge shotgun, and Glock’s .40 caliber handguns — the G22 and G23 in particular.
Savvy investors will notice right away that unlike Glock and Remington Arms, Smith & Wesson (SWHC) is a publicly traded stock — and it’s been flat since Aurora. Even three weeks after the news broke, there’s still plenty of time to buy it.
Whether or not Congress succeeds in “taking away your guns” isn’t the point here. The mere fact that they’re going to try gives investors a chance to profit.
No matter what the demand for guns, there’s only so much product the market can absorb. Our sources say supply and demand are due to catch up soon. We shall see.