Smith & Wesson turns bullish on strong Q1, Fy17 outlook

Gun manufacturer Smith & Wesson Holding Corporation (SWHC) reported a better than expected fiscal 2016 fourth-quarter revenue and non-GAAP earnings. The market responded positively to the news and lifted the share price to $23.65, up $1.90 or 8.74% from Thursday’s close. There is further upside potential for the share price due to the reasons given below.

The Massachusetts-based company reported a fourth-quarter revenue of $221.11 million, up from $180.99 million in the fourth-quarter of fiscal 2015. The reported revenue was higher than the analysts’ estimate of $215.5 million.

The company reported its fourth-quarter net income of $35.64 million or $0.63 per share, compared to $21.88 million or $0.40 per share in the prior-year similar period. The non-GAAP earnings for the quarter increased 16.9% to $37.43 million or $0.66 per share, from $24.94 million or $0.45 per share in the corresponding period last year. The fourth-quarter earnings were 22% higher than the analysts’ estimate of $0.54 per share.

SmithWessonCorp

During the fiscal 2016, the company’s revenue increased 31% to $722.9 million, from $551.86 million in the fiscal 2015. On a y-o- y basis, the Firearms division reported a 22.4% increase in the net sales to $203.7 million. The Accessories division recorded net sales of $17.5 million, up 19.8% on a y-o- y basis.

The GAAP net income for the full year 2016 increased to $93.96 million or $1.68 per share, from $49.61 million or $0.90 per share in the fiscal 2015.

The gross margin for the fourth-quarter increased to 41.7%, from 37.1% reported in the fourth-quarter of fiscal 2015.

Smith & Wesson also gave its financial guidance for the first-quarter and full year 2017. or the first-quarter, the company anticipates revenue in the range of $190 million to $200 million. The lower limit of the revenue guidance is about 28% higher than the revenue recorded in the first-quarter of fiscal 2016. The non-GAAP income is anticipated to range between $0.49 per share and $0.53 per share.

For the full year, the company expects the revenue in the range of $740 million to $760 million. The earnings are forecasted to be between $1.83 per share and $1.93 per share. The earnings per share guidance represent an 8.9% increase compared to fiscal 2016. Thus, fundamentally, the company is on a growth trajectory and the financial health is strong.

Technically, the chart shows a firm support for the stock at 21.50. The minor and major resistance for the stock is 26.50 and 31.50 respectively. The stochastic is rising out of the bearish zone and the stock has closed above the 50-day moving average. Thus, the possibility of a further downtrend in the stock is minimal.

So, a binary options trader should look at one touch call option binary strategy to gain from the impending price rise. The target level for the one touch call option can be up to $28 and the contract expiry date should preferably fall in the third week of July.