Analysts Set Sights On Smith Wesson

Analysts Set Sights On Smith Wesson

Smith Wesson Holding Corporation (SWHC), a global provider of products and services for safety, security, protection, and sport, was recently upgraded to Outperform at Avondale with a $4.25 per share price target. Smith Wesson financial performance has been negatively impacted by federal spending, but it has announced plans to sell or spinoff the unit. Lackluster Financial Performance

Smith Wesson has been trading lower than its peer group in recent months. For instance, its stock is trading down nearly 20% yeartodate, compared to Sturm, Ruger Company (RGR), nearly 100% increase over the same time period. Of course, some of this discrepancy can be described by simply looking at the companies most recent earnings reports.

Last quarter, Smith Wesson reported a 4.5% increase in revenues and net income of 1 cent per share, while Sturm, Ruger Company (RGR) revenues jumped nearly 17% during the first half with net income of $0.57 per share. These higher growth rates justify higher multiples and therefore a greater valuation, as is reflected in the current market price.

Digging Deeper to Find True Value

But looking a bit deeper yields some key insights. The primary catalyst behind Smith Wesson lackluster results was a 56.4% decline in its security solutions sales, which offset a solid 18% increase in its firearms sales. And earlier this month, the company announced plans to sell or spinoff the unit into a separate publicly traded entity in a move that could unlock significant value.

The company underlying fundamentals also appear to be improving. Earlier this month, it was awarded two firearm contracts in Texas from the Austin Police Department and the San Antonio Police Officers Association. Both organizations converted their firearms to the company products and could produce additional shareholder value down the road.