Smith & Wesson Holding Corp (NASDAQ:SWHC) will announce earnings after the close today, and shares are likely to make a significant move in extended trading this evening and into Friday’s open. Today’s 5% pullback could be a sign of lower lows to come, or it could be a buying opportunity ahead of the announcement.
Wall Street is expecting a profit of 53 cents a share on revenue north of $198 million. The high earnings and revenue estimates are at 60 cents a share on sales of $208 million, while the low estimates are at 48 cents on revenue of $190 million.
The company has topped estimates during the past four quarters by 12 cents, 20 cents, 5 cents and 10 cents, respectively.
Given the current political rhetoric surrounding the industry, it’s likely that sales are still strong and that another earnings beat could be coming. I heard in various crowd conversations that gun sales are booming, as people continue to arm themselves given the uncertainty over the future of the 2nd amendment.
With shares near the 52-week peak of $31.19, it would be hard to bet against the company. On the other hand, an earnings miss could have a big effect on shares and send them tumbling.
Trading SWHC on Earnings
Click to Enlarge Current resistance is at $30-$30.50, but a close above the latter could get fresh highs in play. Support is at $28.50 and the 50-day moving average. There is risk to $26-$25.50 and the 100-day moving average on a shockingly bad quarter.
The SWHC Sept $30 calls (SWHC160916C00030000, $0.75, down $0.45) could be targeted by bullish traders expecting a run past $30 by Sept. 16. If $31.50 is cleared by mid-September, these call options will double from current levels. The breakeven level is $30.75.
Bearish traders could target the SWHC Sept 26 puts (SWHC160916P00026000, $0.70, up $0.45) on an earnings miss or lowered outlook. These put options would double from current levels if shares fall below $24.60. They are up a whopping 180% today after closing Tuesday’s session at a quarter.
While I’m more bullish than bearish on SWHC, I’m also wary of a “sell-the-news” event, even with a slight earnings beat, so I’ll likely stay on the sidelines.
Both aforementioned options purchased together would cost $1.45 at current levels, and the combination trade could be used by conservative traders. The breakeven points would be if SWHC shares clear $31.45 or fall below $24.55, technically, by mid-September.
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