Smith & Wesson Maker Had Good Quarter, But Politics Keep This Analyst On The Sidelines

The maker of the iconic Smith & Wesson gun saw its stock trade higher Thursday after reporting a stronger fourth quarter than Wall Street expected.

But one sell-side analyst said American Outdoor Brands Corp. AOBC has an ironic problem in its near-term outlook – there’s not enough of a threat of tougher gun control laws.

It’s an irony often noted by gun industry observers: when there’s discussion of putting restrictions on guns, sales go up.

The Analyst

Wedbush analyst James Hardiman maintained a Neutral rating and a $10 price target on AOBC.

The Thesis

The Springfield, Mass.-based company, makers of one of the most well-known brands in the industry, on Wednesday reported fourth-quarter earnings of 26 cents a share, well ahead of the Street’s 16 cents estimate. Revenue was up 2% over the same quarter last year and also beat analysts’ expectations.

But the bottom line is there’s not much pushing people to buy guns, Hardiman wrote in a note to investors Thursday.

"The industry is working through a lull in firearm demand given the lack of gun control fear,” he wrote.

Politics Could Help

There might be some help coming down the road, however, in the form of election year rhetoric. If the gun debate heats up on the campaign trail, it’s likely to boost sales.

“FY21 is seen to be a year in which we could see urgency re-enter the equation as the political environment begins to heat up,” Hardiman wrote. “Such a far-off catalyst, however, is not enough for us to recommend investors buy into AOBC shares today."

Overall, AOBC has a strong share of the handgun market, which is growing. But both the company and the industry as a whole see choppy demand until the election year.

Price Action

Shares traded up more than 3.4% to $9.45 on Thursday afternoon.

Related Links:

Wedbush: American Outdoor Brands 'Unlikely To Be Met With Excitement' After Guidance Left Unchanged

Gun Stocks: A Look Back And Ahead