SWHC Stock Soars Following Gun Control Speech
On the day that President Obama launched his latest initiative to promote more gun control laws in the United States, Smith & Wesson Holding Corp. (NASDAQ:SWHC), the number one firearm-maker in the United States, shot back. SWHC stock rose more than 12% as the company announced better-than-expected earnings and revenue estimates for the third quarter and full fiscal year 2016, which ends in late April.
Despite all its efforts to curb firearms sales, the Obama Administration has made Smith & Wesson stock’s day. The group’s arms sales have far exceeded expectations, a trend that could continue according to management.
Gun Control Good for Gun Makers
Indeed, fears of more gun control measures to be adopted by the White House caused overall firearm sales to jump in December, but Smith & Wesson’s stock can continue to aim high, thanks to favorable revenue and earnings estimates.
For the company’s fiscal year (to close on April 30, 2016), the group expects revenue of $650 million–$660 million. Moreover, Smith & Wesson stock has more room to grow. The company plans to extend its business in the military sector, bidding for a contract with the U.S. Department of Defense (DoD). The latter needs to source at least 500,000 new guns in 2017. (Source: “Smith & Wesson takes aim on Army pistol contract,” The Boston Globe, March 20, 2015.)
For the time being, Smith & Wesson’s core business relies on private individuals, who generate 90% of the group’s revenue. Should Smith & Wesson win the DoD contract, it would just be icing on the cake.
Obama’s words suggested that the time for stricter controls may have finally arrived. While supporters of stricter gun laws may be pleased, the stock prices of the two most important publicly traded U.S.-based gun manufacturers—Smith & Wesson and Sturm, Ruger, & Company, Inc. (NYSE:RGR)—were up on the charts, with RGR stock up 7.18% on Tuesday. Neither gun owners nor owners of gun stocks should be worried. Attempts to regulate guns are a boon to gun stocks.
The markets have spoken and the message is that gun laws are not about to change anytime soon. Congress will do nothing to increase controls on the sale of firearms. The President has tried, but he knows that gun controls are a losing battle. Congress is determined to enforce the U.S. Constitution to the letter, refusing to lift a finger to make it more difficult to own a firearm.
The gun lobby simply does its job too well. It keeps relationships with dozens of senators and deputies. Such relationships are not only legal, but they are also known and transparent. The NRA’s activity is well recorded and reported. The firearms industry represents one of the safest industries for American investors to consider for long-term gains.
The more intense the pressure to enforce gun ownership restrictions, the more people rush to buy guns. As Erich Pratt, representative for Gun Owners of America, pointed out, Barack Obama may deserve the prize for best weapons seller of the decade. (Source: “Gun production has doubled under Obama,” The Hill, July 23, 2015.)
“President Obama has been relentless in his attacks on the Second Amendment, and it’s not shocking people are frightened and want to protect themselves,” said Jennifer Baker, representative for the National Rifle Association (NRA). (Source: Ibid.)
The data is incontrovertible: under President Obama, the production of firearms in the United States has increased from less than 4.5 million units to over 10.8 million units, an increase of 140%. Imports have also increased and in 2013, at 5.5 million units, they hit a 30-year record. (Source: Ibid.)
The NRA also influences the laws of individual states and invests money in the local government elections, naturally supporting pro-gun candidates. The president will not be heard any better in his latest effort to enforce more gun controls. Even those in support of tighter gun ownership rules, as I must admit to being, will concede that Smith & Wesson stock, as most gun stocks, remains a fairly safe target for investors to consider.