Why American Outdoors Guidance Was Much Better Than Expected

American Outdoor Brands Corp AOBC stock skyrocketed 39 percent Friday after the company shocked Wall Street and reported a big second-quarter earnings beat and raised its full-year guidance.

Many investors had been bracing for a guidance cut after FBI NICS firearm sales data in June and July suggested demand may be peaking, but American Outdoor’s new guidance indicates the company had already been incorporating the softening into its previous guidance.

Background Check Data

FBI NICS data revealed record demand for background checks through the first five months of the year. However, the 1.93 million checks reported in June and the 1.83 million checks reported in July both fell short of 2016 records of 2.13 million and 2.19 million, respectively. Although June and July background checks were both up compared to last year, investors were concerned that American Outdoor has projected record sales to continue as part of its full-year guidance.

Instead, American Outdoor raised its guidance this week. The company now expects full-year revenue of between $620 million and $630 million, up from previous guidance of between $570 million and $600 million. The new guidance is also well above consensus analyst estimates of $597 million.

Wedbush’s Take

Wedbush analyst James Hardiman said even the new guidance may still be on the conservative side.

“We believe that the updated guidance remains somewhat conservative, although until we see an inflection in industry trends (NICS checks) we believe that a bit of caution remains warranted,” Hardiman said.

Wedbush reiterated its Outperform rating and $14.50 price target for the stock.

Despite the big Friday gain, American Outdoors stock is up just 4.7 percent overall in 2018.

Shares of gun stocks Vista Outdoor Inc VSTO and Sturm Ruger & Company RGR also traded higher on renewed optimism about the U.S. firearm market. Vista stock was up 4 percent and Sturm stock was higher by 6.8 percent.

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