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Smith & Wesson Holding Corporation (SWHC) Q3 Earning Preview: Shooting Beyond The Target

 March 04, 2013 01:25 PM

(By Rich Bieglmeier) Smith & Wesson Holding Corporation (SWHC) plans to release its third quarter fiscal 2013 financial results on Tuesday, March 5, after the close of the market. Management will host an analyst conference call and live web cast live scheduled to begin at 5:00 p.m. Eastern Time.

Wall Street anticipates that SWHC will earn $0.23 for the quarter. iStock expects the gun  maker to report earnings that will beat Wall Street's consensus number. The iEstimate is $0.25 – a 2 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.

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

Management has done a solid job of managing Wall Street's estimates. In the past four year, SWHC's earnings shot past analysts' consensus by a wide margin by an average of 90% 11 of the last 16 announcements; meaning nearly twice expectations. For the remaining five quarterly checkups, SWHC met the estimate four times and missed by 50% once.

Despite the recoded of obliterating the street's target, Smith & Wesson stock price has delivered mixed results. An unlucky seven times, shareholders watched SWHC fire blanks, losing an average of 11.27% in the days surrounding earnings.

Prior to last quarter's 5.9% earnings season slide, the handgun maker's stock price raced ahead by at least 25% for four consecutive quarters and five of six.

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

Investors soured on last quarter's earnings because Smith's backlog dropped.  This time around, anybody that's been paying attention to the new surrounding the gun debate knows that guns and ammunition are flying off the shelves.

iStock doesn't think that will be a problem this time around. According to the FBI's NICS Firearms Checks for the top 10 weeks from November 30, 1998 – February 24, 2013, nine of the ten fell in SWHC's third quarter with one to start Q4. It should be a stellar quarter.

Google trends back up the FBI's stats. Year-over-year (YoY) web searches are up 34% and hit all-time highs in January. Queries are up an even larger 57.5% compared to SWHC's last earnings announcement when they earned 24 cents for the quarter, which would put earnings at 38 cents if search volume increases translate directly to earnings-per-share.

Options investors on the call side mirror the FBI data, and Google Trends as today's call volume is outpacing put volume by a 3.2 to 1 margin. Meanwhile, open interest is a little more balance with 2.4 call options per put.

Overall: iStock expects another bang-up quarter from Smith & Wesson Holding Corporation (SWHC). FBI checks, Google Trends, and a lack of available ammunition should translate into higher margins and a re-building of backlog. 

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