SWHC Market Research & Analysis Report
Updated Oct 2, 2015

Growth and Balance Sheet

Smith & Wesson Holding Corp. (SWHC) reported fiscal first-quarter net income of $14.4 million. Quarterly net sales were $147.8 million, an increase of 12.1% from the first quarter last year.  Firearms division net sales of $134.4 million increased by 1.9% from the comparable quarter last year.  Accessories division net sales of $13.3 million increased by 29.9% from the comparable quarter last year, which was prior to the company's acquisition of Battenfeld Technologies, Inc. (BTI) on December 11, 2014. Gross margin for the quarter was 39.8% compared with 37.2% in the prior year. Quarterly GAAP net income was $14.4 million, or $0.26 per diluted share, compared with $14.6 million, or $0.26 per diluted share, for the first quarter last year. First quarter 2016 GAAP net income per diluted share included an expense of $0.08 related to the previously announced redemption of the company's 5.875% Senior Notes, an expense of $0.04 for acquisition amortization related to the acquisition of BTI, an expense reduction of $0.03 related to an insurance settlement, and a tax benefit for the foregoing items of $0.03.

For the current quarter ending in November, Smith & Wesson expects its per-share earnings to range from 19 cents to 21 cents. The company said it expects revenue in the range of $135 million to $140 million for the fiscal second quarter. Analysts had expected revenue of $127.4 million. Smith & Wesson expects full-year earnings in the range of $1.14 to $1.19 per share, with revenue ranging from $610 million to $620 million.

Valuation

Smith & Wesson Holding Corp. (SWHC) P/E stands at 18.59 above the industry average of 17.43, and above the S&P 500 average of 17.45 The company is currently trading above the maximum P/E ratio of 15x, and over the last five years, the company’s shares have traded in the range of 8.20x to 18.4x trailing 12-month earnings. SWHC's current Price/Sales of 1.59 is above the average of its industry of 1.25. SWHC’s head to head comparison to its main competitors shows that the company has gross margin above its peers, and one that is above the industry average. The achieved operating margin of the company is above the average operating margin of the selected competitors, and it is above the industry average. The quarterly revenue is above the industry average and above it’s main competitor RGR. The stock is currently trading at its intrinsic value of $16.73 this suggests that the stock is fairly valued at these levels. The beta of 0.12 implies lower volatility of the stock with respect to the S&P 500. SWHC has shown positive earnings consistency over the last five years. Company’s earnings have increased by 19.55% over the same period. The current quarter earnings in comparison to the same quarter last year are flat. SWHC’s Total Debt/Equity of 84.31 is negative. SWHC’s current price levels are below the maximum level, is trading 15.50% below the 52 week high of $19.22, and the technical analysis give a neutral view of the stock. The majority of analyst ratings are bullish. SWHC pays no dividend.

About SWHC

Smith & Wesson Holding Corporation (Smith & Wesson) is a manufacturer of firearms. The Company manufactures a range of handguns, modern sporting rifles, hunting rifles, black powder firearms, handcuffs, and firearm-related products and accessories for sale to a range of customers, including gun enthusiasts, collectors, hunters, sportsmen, competitive shooters, individuals desiring home and personal protection, law enforcement and security agencies and officers, and military agencies in the United States and globally. It sells its products under the Smith & Wesson brand, the M&P brand, the Thompson/Center Arms brand, and the Performance Center brand. The Company manufactures its firearm products at its facilities in Springfield, Massachusetts and Houlton, Maine. In May 2014, the Company through Deep River Plastics LLC, subsidiary purchased substantially all of assets of Tri Town Precision Plastics Inc.

Competitor Comparison

Smith & Wesson Holding Corporation (NasdaqGS:SWHC) N.V.

Highlights

The Company competes with Ruger and Taurus, Glock, Ruger, Sig Sauer, Springfield Armory, Colt, Sig Sauer, Bushmaster, Rock River, DPMS, Browning, Marlin, Remington, Savage, Weatherby, CVA, Traditions, Winchester, Peerless Handcuff Company, Vista Outdoors, Hyskore, Hornady, Laserlyte, Lyman, Birchwood Casey and MTM Case-Gard. The stock closed yesterday’s trading session at $16.63. In the past year, the stock has hit a 52-week low of $9.03 and 52-week high of $19.22. SWHC has a market cap of $905.81 million and is part of the industrial goods sector.

• Increased focus on R&D helped building broad product portfolio          
• Firearms catering to needs of diverse customer segments  
• Robust financial performance    

• High dependent on US market
• Limited production capacity 

SWHC Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. SWHC's 52 week high is $19.22 current price is 16.63, is 15.50% below the 52 week high.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company has a P/E ratio of 18.59 above the average industry P/E ratio of 17.43 and is above the S&P 500 P/E ratio of 17.45.

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own 11.94% of SWHC stock. Management's representation is large enough. This does not satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

SWHC is trading in the range of $14.71 - $19.22 in the past 30 days. The stock has been showing support at $15.40 and resistance in the $19.00 range. The stock is trading below the 50-Day Moving Average and above the 200-Day Moving Average. The RSI(14) is 49.41. Our indicators give a neutral view on SWHC.

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Investor’s sentiment for the stock.

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com is 0 Buy, 7 Outperform, 1 Hold, 1 Underperform and 0 Sell.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. SWHC’s annual EPS for the last 5 years were 0.13, 0.40, 1.22, 1.47, 0.90 this type of earnings action is positive.

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 25% or should be less than the average Debt/Equity for its industry. SWHC’s have total debt/equity ratio of 84.31 which is negative.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. SWHC’s EPS growth for this quarter relative to the same quarter a year earlier is 0.4%, below our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. SWHC’s annual earnings growth rate over the past five years is 19.55%, above the target growth rate.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.