Smith & Wesson: Firing on All Cylinders Ahead of Earnings Report

NEW YORK (TheStreet) -- Firearms manufacturer Smith & Wesson (SWHC) will report fiscal fourth-quarter and full-year earnings results Thursday after the closing bell, and for those waiting for a better entry point on the stock thinking that the company will disappoint analysts, think again.

Smith & Wesson of Springfield, Mass., has hit its earnings targets and then some for eight consecutive quarters.

The stock has skyrocketed almost 68% this year, demolishing performances of every important index. And all of Smith & Wesson's gains have come in the past six months.

All told, despite some volatility, shares of the 162-year-old gun manufacturer have been a top performer since we last recommended the stock in October.

With such strong stock gains on the table, especially coming in a relatively short period of time, there would be some hesitation. New investors are likely grappling with whether to buy Stock & Wesson's stock now or wait to hear what the company says about its business outlook for the second half this year.

As for current shareholders, the decision to take profits now ahead of Thursday's results is likely a tough one. But it doesn't have to be.

When Smith & Wesson reported its fiscal third-quarter results in March, the company raised both its revenue and earnings projections for the just-ended quarter. The company now expects fiscal fourth-quarter revenue to be in the range of $175 million to $179 million and earnings per in the range of 34 cents to 36 cents.

But what sent Smith & Wesson stock shooting higher then was the company's fiscal full-year earnings projections, calling for a range of 84 cents to 86 cents a share. The low-end of the range was then some 10% higher than the average analysts' estimate, which called for 77 cents a share.

In addition, the company's revenue projections of $546 million to $550 million were some 4% higher than Street forecasts of $527 million. And that was on the low end.

Smith & Wesson has signaled that some of its best quarters have yet to come. In that vein, its strong stock gains notwithstanding, this makes placing a bet today on the stock an easy decision ahead of Thursday's results.

Not convinced? Consider, even with the 60%-plus gains that the stock has already made that the shares are trading at just 16 times earnings, which is 5 points lower than the S&P 500 (SPX).

This means, if we were to apply a price-to-earnings ratio of 21 to Smith & Wesson's 2014 full-year earnings of $1.50 a share, the stock would trade at about $30, not $15.

What's more, based on consensus fiscal 2016 earnings projections of $1.07 a share, suggesting better than 24% year-over-year earnings growth, now is a good time to buy the stock, which has a consensus buy rating and a high analysts' target of $21, suggesting 31% gains from current levels.

This article is commentary by an independent contributor. At the time of publication, the author held no shares in any of the stocks mentioned.

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