Vista Outdoor Soars as Cowen Sees Extended Gun-Demand Upcycle

Vista Outdoor will likely see a jump in firearms and ammunition demand following Joe Biden's election, a Cowen analyst says, upgrading the stock.
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Vista Outdoor  (VSTO) - Get Report shares were higher on Tuesday after they were upgraded to outperform from market perform by a Cowen analyst who said President-elect Joe Biden's gun-control plans will likely spark demand for guns and ammunition.

Shares of the Anoka, Minn., outdoor-sports and recreation company at last check were nearly 23% higher at $25.91.

Analyst Gautam Khanna also raised his share-price target on Vista Outdoor to $33 from $29. 

The analyst said in a research note that the current ammunition demand upcycle is "apt to extend" and Vista's current valuation is "compelling."

“We see many reasons for an extended demand uptick for VSTO’s ammo products,” Khanna said.

Khanna said that Biden’s gun-control ambitions, which are stricter than President Donald Trump's, will likely stimulate demand for ammunition and firearms, even though these ambitions probably won’t result in “substantive legislative change."

Gun-control advocates have called for moves including renewing a ban on AR-style rifles, instituting universal background checks, and restricting high-capacity magazines.

A surge in ammunition demand and price increases reflect an “influx of new shooters,” rather than “stockpiling by longstanding shooters,” which “broadens VSTO’s customer base," the analyst said.

Khanna also said that the coronavirus pandemic and fears of civil unrest may result in a lingering “cultural Armageddon mentality.”

And he said the company's prior overhangs, namely portfolio quality and leverage, have abated. 

The FBI earlier this month reported that 3.63 million firearm background checks were initiated through the National Instant Criminal Background Check system in November. 

That's up 41% from 2.57 million checks in November 2019 and up 9.7% from 3.31 million in October 2020.