Cowen Raises Rating on Smith & Wesson Holding (SWHC) to 'Outperform' Following Strong Results and Guidance

Cowen upgraded Smith & Wesson Holding (NASDAQ: SWHC) from Market Perform to Outperform with a price target of $28. The change follows strong Q4 results and guidance. Analyst Cai von Rumohr said FY17 guidance looks conservative.

"While retail gun sales slowed in May, FY17 guide looks conservative, cash deployment & the Army handgun competition are uppers and SWHC's proven ability to gain share/make good acquisitions suggest the stock is underpriced at 5.7x FY17 TEV/EBITDA. We see upside to at least $28 - a 7.5x TEV/EBITDA," said the analyst.

von Rumohr added, "Initial FY17 revenue guide midpoint of $750MM (+4%, matches our estimate) looks very plausible despite the disappointing 17% sequential drop in May NICS background checks; and this suggests potential GAAP EPS of $1.80. Pluses include (1) modest distributor inventory entering FY17 of 2.1/weeks of cover (vs. targeted 8), (2) a resulting strong Q1, allowing for possible deceleration later in the year, (3) indicated strong new product introduction in FY17, including M&P 45 pistol and Compass bolt action rifle, (4) outsourcing of MSR production, limiting overhead absorption risk if sales fall off, and (5) likely continuing 10%+ growth in the lucrative accessories line. In addition, we're told that guide assumes no "surge" demand although potential for a Clinton presidential win could bolster gun sales in anticipation of possible stricter gun controls, a phenomenon which led to the late 2008 surge when Obama won the White House. Hence, we're holding our FY17 GAAP EPS estimate at $1.80 (+7%)."

For an analyst ratings summary and ratings history on Smith & Wesson Holding click here. For more ratings news on Smith & Wesson Holding click here.

Shares of Smith & Wesson Holding closed at $21.75 yesterday.

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