Smith & Wesson Brands (NASDAQ:SWBI) recently spun off its outdoor recreation business to focus on its firearms business. Because of that, one Wall Street analyst says the gunmaker is perfectly poised to garner significant momentum.
Aegis analyst Rommel Dionisio initiated coverage of Smith & Wesson with a buy rating, and set a target price for its stock at $23 per share, some 48% above its close on Wednesday.
Locked and loaded
Dionisio wrote Smith & Wesson should benefit from the increased demand in firearms due to a desire for protection as civil unrest persists in major cities and calls to defund police departments gain traction in certain regions, Thefly.com reports.
Moreover, the analyst says the presidential election could be a watershed moment for the firearms industry given that Joe Biden and his running mate, Kamala Harris, have promised to initiate gun control legislation if elected. That could spur the demand for high-profit-margin modern sporting rifles as well as high-capacity handguns.
FBI data on criminal background checks of potential gun buyers run through the National Instant Criminal Background Check System (NICS) shows activity surging to unprecedented levels, with investigations up over 42% year to date.
The National Shooting Sports Foundation, which adjusts the FBI data by removing duplicate background checks of existing concealed carry permit holders to get a better sense of industry demand, says more background checks have been conducted through August 2020 than were done in all of 2019.
Smith & Wesson reported firearms sales jumped 141% last quarter and with dealer inventories having been depleted -- the gunmaker doesn't sell to the public, only to federally licensed dealers and retailers -- it should continue to benefit from heightened consumer demand for more guns.