What happened
Shares of Vista Outdoor (VSTO 0.59%) were climbing today after the maker of ammunition and outdoor products got an analyst upgrade on forecasts of a bullish ammunition cycle.
As of 12:23 p.m. EDT, the stock was up 26.1%.
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So what
Cowen analyst Gautam Khanna lifted his rating from market perform to outperform on Vista and raised his price target from $29 to $33. Khanna said that the current demand upcycle, which has been driven by both outdoor recreation like hunting during the pandemic and self defense following civil unrest this summer, is "apt to extend" as President-elect Biden takes office.
Historically, a Democrat coming into the White House as driven a spike in demand for guns as gun owners fear stricter regulation on firearms, so it wouldn't be surprising to see a rise in gun sales again, especially if Biden focuses on the issue.
Khanna also called the stock's valuation "compelling" and believes the company has overcome earlier challenges around debt and the value of its brands, which include Remington, Bushnell, and Camelbak.
Now what
Vista has seen strong growth this year in both its shooting sports and outdoor sports categories as revenue jumped 29% in its most recent quarter. Margins also expanded significantly thanks to investments in e-commerce as gross profit jumped 79% in the quarter, and it delivered adjusted earnings per share of $1.10 in the fiscal second quarter compared to a break-even result a year ago, adding to its appeal as a value stock.
That result shows the stock has a lot of upside potential if it continues to experience a similar level of momentum over the coming quarters. With the pandemic still raging, and the incoming president likely to spark demand for ammunition, Vista looks poised for further gains.
