Gun Stock Earnings Start with a Bang

by Jim Woods | November 6, 2013 9:05 am

The largest publicly traded U.S. firearm-maker, Sturm, Ruger & Co (RGR[1]), reported earnings on Tuesday, kicking off earnings season for gun stocks.

The firearms giant reported bullseye Q3 earnings that included a 45% jump in sales over the same quarter a year ago. Contrary to what some critics have been saying about RGR, the sales blast came from strong demand for its new product lines, including the LC380 pistol, the SR45 pistol, and the Ruger American Rimfire rifle.

The new products helped RGR’s revenue spike to $170.9 million, easily surpassing the $118.2 million in Q3 last year. It also shredded through consensus estimates like an armor-piercing round, with revenue just north of $153 million. The bottom line also easily beat expectations, coming in at $1.44 per share, vs. the $1.21 per share most of Wall Street was expecting.

Sturm Ruger’s shares were up 1.35% in after-hours trading following the Q3 release, and I expect that upside move to continue. Indeed, if the past month is any indication, RGR shares are in excellent shape. The stock is up more than 9% in just the past four weeks, and the the stock has been on an outstanding 56.5% run in 2013.

This kind of performance is much better than Sturm Ruger’s chief gun stocks rival, Smith & Wesson Holding Corp. (SWHC[2]). Smith & Wesson’s shares are still up a robust 34.5% year to date, beating the broader market, but SWHC hasn’t packed quite the punch that RGR has.

Early last month I wrote about the gun stocks trade[3] and how it was still firing. That story came in response to Smith & Wesson’s plans to buy back another $15 million of its stock[4]. Although SWHC did make a downward revision to its fiscal Q2 and full-year outlook, the confidence displayed by the share buyback decision gave me confidence that the so-called slowdown some of have called for in gun stocks was way off target.

Tuesday’s report from Sturm Ruger further supports my thesis that the buying public still craves what gun makers are offering, and that craving is likely to keep gun stocks going for quite a bit longer. In fact, I expect to see a strong earnings beat from SWHC when it reports on Dec. 5.

The bottom line is that when it comes to firearms, Americans are still bidding stocks like RGR and SWHC higher. This activity, in my opinion, is based on a justified fear of federal encroachment in our lives, and politicians’ desire to run roughshod over the Second Amendment and most other Constitutional rights. Until this fear subsides, I’ll be bullish on gun stocks.

As of this writing, Jim Woods was long SWHC.

Endnotes:
  1. RGR: http://studio-5.financialcontent.com/investplace/quote?Symbol=RGR
  2. SWHC: http://studio-5.financialcontent.com/investplace/quote?Symbol=SWHC
  3. I wrote about the gun stocks trade: http://investorplace.com/2013/10/gun-stocks-swhc-rgr/#.UnnLAlOQOlp
  4. plans to buy back another $15 million of its stock: http://www.marketwatch.com/story/smith-wesson-completes-100-million-stock-repurchase-authorizes-additional-15-million-2013-10-01?reflink=MW_news_stmp

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