Smith & Wesson Holding Corporation (SWHC) reported stellar fiscal fourth-quarter 2012 results on June 28, which included a 59% earnings surprise and a 135.1% year-over-year jump in firearm backlog. This leading firearm manufacturer and Zacks #1 Rank (Strong Buy) hit its 52-week high on July 2.
Strong Finish to Fiscal 2012
Smith & Wesson reported fiscal fourth quarter earnings of 27 cents per share, surpassing the Zacks Consensus Estimate of 17 cents and the year-ago earnings of 7 cents.
The company registered a 27.7% year-over-year surge in sales to $129.8 million, due primarily to strong sales of M&P polymer pistols and M&P modern sporting rifles.
Gross profit as a percentage of sales grew to 36.1% from 30.7% in the year-ago quarter. Cost reduction initiatives boosted margins, and operating expenses as a percentage of revenue declined 660 basis points from the prior-year quarter.
The company continues to invest in research and development (R&D) activities, spending $4.5 million in fiscal 2012 on R&D versus $4.4 million in fiscal 2011.
The company expects fiscal 2013 sales in the range of $485 million to $505 million with GAAP earnings at 60 cents to 65 cents.
Fiscal 2013 Estimate Revision
In the last 7 days, both estimates for this fiscal year have moved north, pushing the Zacks Consensus Estimate higher by more than 33% to 64 cents, which is at the high end of the company’s guidance range.
Reasonable Valuation
Smith & Wesson is presently trading at a premium to its peers. Shares are at a forward P/E of 13.7x, up 28% from the peer group average of 10.7x. However, the return on equity (ROE) of 24.6% looks attractive compared with the peer group average of 15.2%.
Market Performance & Technicals
The chart below depicts the full story, with the stock rising steadily and nearly doubling from $4.49 per share to the present level of $8.89 per share in just six months.
Following the strong fiscal 2012 results, shares have been trading higher than its 50 days and 200 days moving average. Volume is fairly strong, averaging roughly 2,585K daily. The year-to-date return for the stock is 103.8%, much above Nasdaq’s return of 13.3%.
Based in Springfield, Massachusetts, Smith & Wesson Holding Corporation was founded in 1852. The company manufactures, designs and supplies a large variety of fire arms and related items for its worldwide customer base. The company has 1,346 full time employees and a market cap of $0.6 billion. It competes with Sturm, Ruger & Company Inc. (RGR) among others.
