Summary
- Today, we take a look at Smith & Wesson Brands, Inc., an iconic and leading manufacturer of firearms in the United States.
- After a miserable 2022 for shareholders, Smith & Wesson Brands stock is up some 20% in 2023, as this year should see "trough earnings."
- The company is also in the process of moving its headquarters, which should have longer-term benefits.
- The shares are reasonably valued and pay a 3.7% dividend yield. Can Smith & Wesson Brands, Inc. stock continue to rise? An investment analysis follows in the paragraphs below.
The fascination of shooting as a sport depends almost wholly on whether you are at the right or wrong end of the gun ."? P.G. Wodehouse, The Adventures of Sally.
Today, we put Smith & Wesson Brands, Inc. ( SWBI ) in the spotlight. The stock of this famed gun maker is up just over 20% in 2023 so far after posting a horrid performance in the preceding year. Can the New Year rally continue? An analysis follows below.
Company Overview
Smith & Wesson Brands was founded before the Civil War and has been throughout its history based in Springfield, Massachusetts. The company makes a market a wide variety of products, including handguns which include revolvers and pistols such as the iconic 357 magnum of Dirty Harry fame. It also makes long guns, such as modern sporting rifles, bolt action rifles; handcuffs; suppressors; and other firearm-related products. The stock currently trades near $11.00 a share and sports an approximate market capitalization of $500 million. The Smith & Wesson Brands, Inc. fiscal year ends on March 31st.
Fiscal Second Quarter Results
The company reported disappointing Q2 2023 numbers on December 6th. Smith & Wesson Brands, Inc. had a non-GAAP profit of 26 cents a share even as revenue shrank just over 47% on a year-over-year basis to $121 million. Both top and bottom line results missed expectations badly.
Smith & Wesson experienced a huge surge of pandemic related sales like all firearms manufacturers did during the Covid lock downs and madness of 2020. It should be noted that revenues this second quarter were up over six percent from the company's 2Q2020 results, which was the last second quarter before the coronavirus came to our shores. Average selling prices or ASPs in the quarter were approximately 45% above those in the same period of fiscal 2020 as well. EBITDA was up nearly 90% from 2Q2020, driven by higher ASPs and lower operating costs.
Recent Developments
The company is in the middle of a planned relocation of their headquarters and certain manufacturing and distribution operations to Tennessee. This should result in lower operating expenses and a better regulatory environment on a state level than that of Massachusetts. In addition, control of Congress is now split between the two parties after the recent mid-term elections. This takes the prospect of significant additional gun legislation at the Federal level off the table, which should be a positive for the industry.
Analyst Commentary & Balance Sheet
Despite being an American icon, Smith & Wesson gets little in the way of coverage from Wall Street. Craig-Hallum reiterated its Hold rating on the stock right after quarterly results posted and lowered its price target five bucks a share to $12. The same day, Lake Street reduced its price target on SWBI stock to $13.50 a share from $22 previous, but maintained its Buy rating on the equity. Those are the only two analyst firms I can find that have chimed in around Smith & Wesson Brands, Inc. over the past year.
Insider selling has been confined to one director, who has sold some $225,000 worth of shares in aggregate since the beginning of July. Just over six percent of the outstanding float in the shares are currently held short. The company ended the third quarter with approximately $43 million in cash and marketable securities on its balance sheet against no long term debt.
Verdict
The currently analyst firm consensus has Smith & Wesson Brands, Inc. making a profit of just over 80 cents a share in FY2023 even as sales are expected to fall just over 45% to a tad north of $465 million. Revenues are projected to pop back in the high single digits in FY2024 as EPS moves up nicely to around $1.15 a share.
FY2023 feels like it is going to be a " trough" year for Smith & Wesson Brands, Inc. as revenues and earnings achieve "s tabilization" towards the end of the year after the huge surge of sales during/immediately after the pandemic. The relocation to Tennessee will also be completed. At roughly 12 times these trough earnings equating for net cash and one times sales, SWBI seems reasonably valued here, especially when taking into consideration Smith & Wesson Brands, Inc. stock's 3.7% dividend.
I have been accumulating Smith & Wesson Brands, Inc. shares on dips below $10 via covered call orders. This simple strategy provides downside risk mitigation and adds an extra level of return as I think Smith & Wesson Brands, Inc. stock could be rangebound from here until we get closer to 2024, when sales and earnings should start growing again.
Doesn't matter how big the gun is if you don't know where to point it ."? Leigh Bardugo, Six of Crows.
For further details see:
Taking Aim At Smith & Wesson