Who can forget the .44 Magnum immortalized by Clint Eastwood in Dirty Harry. Gunmaker Smith Wesson also made history with its .38 Special, a standard police revolver for a century. But that's the trouble with the venerable, 154-year-old Springfield, Mass.-based gunsmith: too much living on legend.
Decades back, Smith Wesson held a near-monopoly on the law-enforcement market. Then SW's market share collapsed because the company failed to scoot fast enough from revolvers into pistols and higher-powered firearms that help outgunned cops fight the bad guys.
Lee Schulteis, who runs Alpha Hedged Strategies Fund, a mutual fund that employs hedging strategies, thinks SW (symbol SWB) is being reborn. He dates the turnaround from when new leadership took control in late 2004. Leveraging a highly recognizable, respected brand name (thank you, Hollywood), SW beefed up advertising and marketing to the recreational market and developed new lines of weapons, such as pistols and rifles for the military, and less-than-lethal technologies. The company is winning local law-enforcement contracts again and has garnered a series of contracts with federal agencies, including one to supply 75,000 guns to the Afghan army.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Smith Wesson's factories are running at only 50% of capacity. Schulteis sees that as a good thing. It's one reason he thinks the arms maker is in a strong position to win a U.S. military contract for 645,000 pistols worth between $300 million and $500 million. It helps that two rival bidders, Beretta and Glock, are both foreign outfits.
Revenues are growing 20% a year, but Smith Wesson has predicted a 50% increase in earnings, to $7.5 million to $8 million, in the fiscal year that ended April 30. The company forecasts profits of $12.5 million, or 30 cents a share, in the current fiscal year. Given the rate at which SW is winning new weapons contracts, Schulteis thinks the company could easily exceed earnings expectations.
The stock has gone ballistic, tripling to $6.62 since early 2005. Schulteis thinks the stock can trade at $9 to $10 over the next six to 12 months, and at $12 to $15 if Smith Wesson pulls down some large contracts. The company currently has a market value of about $260 million.
--Andrew Tanzer
-
Six Missteps to Avoid as You Transition to RetirementDon't lose sight of your finances when you finally reach retirement. These six classic missteps can chip away at the nest egg you’ve worked so hard to build.
-
Why Does One Claim Jack Up My Insurance After Years of No Claims?Even loyal customers can be hit with an insurance premium hike after a claim, despite going many years without any claims. There's a reason for that.
-
Why Is Warren Buffett Selling So Much Stock?Berkshire Hathaway is dumping equities, hoarding cash and making market participants nervous.
-
Fed Cuts Rates Again: What the Experts Are SayingFederal Reserve The central bank continued to ease, but a new administration in Washington clouds the outlook for future policy moves.
-
If You'd Put $1,000 Into Google Stock 20 Years Ago, Here's What You'd Have TodayGoogle parent Alphabet has been a market-beating machine for ages.
-
Fed Goes Big With First Rate Cut: What the Experts Are Saying
Federal Reserve A slowing labor market prompted the Fed to start with a jumbo-sized reduction to borrowing costs.
-
Stock Market Today: Stocks Retreat Ahead of Nvidia EarningsMarkets lost ground on light volume Wednesday as traders keyed on AI bellwether Nvidia earnings after the close.
-
Stock Market Today: Stocks Edge Higher With Nvidia Earnings in FocusNvidia stock gained ground ahead of tomorrow's after-the-close earnings event, while Super Micro Computer got hit by a short seller report.
-
Stock Market Today: Dow Hits New Record Closing HighThe Nasdaq Composite and S&P 500 finished in the red as semiconductor stocks struggled.
-
Stock Market Today: Stocks Pop After Powell's Jackson Hole SpeechFed Chair Powell's Jackson Hole speech struck a dovish tone which sent stocks soaring Friday.
