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Smith & Wesson Holding Corporation (SWHC) Earnings - Omne Trium Perfectum

 November 30, 2012 12:45 PM
 


(By Rich Bieglmeier) Smith & Wesson Holding Corporation (SWHC) is expected to report earnings after the market closes on Thursday, December 6, 2012. Wall Street anticipates that SWHC will earn $0.24 for its 3rd quarter. iStock expects the gun maker will report earnings that will exceed Wall Street's consensus number. The iEstimate is $0.27 – a 3 cents upside surprise.

Smith & Wesson is a U.S.-based leader in firearm manufacturing and design, delivering a broad portfolio of quality firearms, related products, and training to the global military, law enforcement, and consumer markets.

Gun sales have been smoking. USA Today reported, ""For the second consecutive year, prospective gun buyers joined Black Friday shoppers in record numbers as firearms dealers swamped the F.B.I. with required buyer background check requests. The F.B.I. fielded 154,873 calls, a roughly 20 percent increase from last year's previous one-day record of 129,166, according to bureau records. The requests came in such volume throughout the day that F.B.I. call centers experienced two brief outages — one of 18 minutes and one for 14 minutes — during the busy day, bureau spokesman Stephen Fischer said Monday."

[Related -Smith & Wesson Holding Corp. (NASDAQ:SWHC) Q2 Earnings Preview: Gonna Fire Blank Guidance?]

Smith & Wesson traders were busy, too, taking big profits in five of the last six SWHC quarterly checkups. In the last year, the stock gained 28 percent, 30.3 percent, 29.8 percent, and 25 percent, in the days surrounding earnings. Five announcements ago, shares lost 10.6 percent and gained 24.5 percent prior to the one down quarter in the last six.

[Related -Alliant Techsystems Inc. (ATK): Forget Gun Stocks, Ammunition Maker Is Up 52%]

Based on the F.B.I.'s records, iStock believes Smith & Wesson will post another solid quarter of profits and offer robust guidance for the fourth quarter; although, analysts forecast sales dipping in 2013, but earnings traders aren't worried about next year, just the next announcement.

Options traders are decidedly on the bullish side of next Thursday's announcement. Open interest for December calls with strike prices from $8 to $13 outnumbers the open interest for puts with the same strikes by a 5 to 1 margin: 22,577 to 4,409.

Based on S&W's stock chart, we would expect another aggressive move from SWHC following the upcoming eps news. Shares have been in an uptrend for the last year. The climb has been clearly defined by a bottom trend-line that's not been violated. In the last few months, gains have been limited and the range from highs to lows getting squeezed. The reliable, rising bottom combined with shrinking tops makes for a triangle pattern. One way or the other, the stock is likely to smash trough the pattern's guardrails next Thursday.  

Technicals are set up in a way that could deliver a powerful push for the stock with a bullish surprise and muscular guidance. In addition to the pattern breakout, SWHC's 12 and 26-day moving averages are on the verge of bullishly crossing over the 50-day average. It's a pattern the stock has repeated for the two earnings announcements. You saw the strength of the move from the previous two up top. The pattern is happening again - omne trium perfectum? (Latin phrase for everything that comes in threes is perfect, or, every set of three is complete.)

With a miss, the bottom trend-line connect pivot bottoms is at $10 with additional support at $9.

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