Smith & Wesson Earnings: An Early Look

Earnings season is winding down, with most companies already having reported their quarterly results. But there are still some companies left to report, and Smith & Wesson (SWBI 0.71%) is about to release its quarterly earnings. The key to making smart investment decisions with stocks releasing their quarterly reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Smith & Wesson has done extremely well in recent years, as gun sales have stayed at extremely high levels. Yet recent tragic events have raised the potential for tighter legal restrictions on guns. Let's take an early look at what's been happening with Smith & Wesson over the past quarter and what we're likely to see in its quarterly report on Tuesday.

Stats on Smith & Wesson

Source: Yahoo! Finance.

Will Smith & Wesson keep growing this quarter?
Analysts have gotten increasingly optimistic in their calls for Smith & Wesson's earnings over the past few months, raising estimates for the most recent quarter by $0.07 per share and full-year fiscal 2013 and 2014 calls by $0.15 and $0.13 per share respectively. Yet shares are down more than 5% since the beginning of December, although they've rebounded sharply from much bigger losses.

Until recently, Smith & Wesson had moved almost straight upward in the face of huge demand. Early in 2012, rival Sturm, Ruger (RGR 1.37%) stopped accepting new orders for guns due to overwhelming demand, and Smith & Wesson saw the same trends helping its business.

But the Sandy Hook tragedy sent gun companies down sharply, as public opinion moved sharply toward more gun regulation. Calls from major pension funds and other institutional investors to divest their holdings of gun and ammunition stocks sent Sturm, Ruger; Smith & Wesson; and Winchester-owner Olin (OLN 0.79%) plunging. For the most part, those drops were short-lived, although the stocks still haven't regained all their losses.

You shouldn't conclude that more gun control would automatically mean worse prospects for Smith & Wesson. With most proposed legislation focusing on assault weapons and high-capacity magazines, the company has plenty of capacity to make compliant guns. And even if new regulations did become law, the Smith & Wesson would inevitably see a surge of demand immediately before they took effect, allowing the gunmaker to get rid of any affected inventory and refocus on other models.

In its quarterly report, look to see if Smith & Wesson can match benign results posted by Sturm, Ruger last week. Given political gridlock in Washington, it's likely that Smith & Wesson will continue to see its favorable business trends lead to good results both this quarter and in the future.

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