Analyst Likes Smith & Wesson Despite 9.5% Drop In Gun Permits

Smith & Wesson Holding Corp (NASDAQ: SWHC) remains poised for a comeback despite a recent slowdown in gun permits, an analyst said Monday.

Federal gun permits, a proxy for retail sales, are off nearly 9.5 percent to about 5.65 million in the first three months of 2015, compared with last year.

But Cowen & Co.'s Cai von Rumohr called the pullback in permits "a good entry point" to acquire Smith & Wesson and said its recovery from the bursting of the so-called Obama gun bubble remains on track.

The gun makers' shares have fallen more than 4 percent in the past month, and changed hands recently at $12.92, up 0.3 percent.

Von Rumohr, who reiterated an Outperform rating and $18 target on Smith & Wesson, discounted the recent slowdown, noting that the company's production, which was cut 25 percent last year to address an inventory glut, will soon match the company's sales and lead to higher margins.

Even if retail sales are flat, Smith & Wesson sales will increase as a result of lower inventories, the analyst said.

Moreover, the Massachusetts-based company's $130.5 million acquisition of Chinese manufacturer Battenfeld last year will result in lower production costs and higher profits.

Von Rumohr expects Smith & Wesson will have $175 million in cash for "deployment" in 2016, which he said may take the form of acquisitions, buybacks or debt retirement.

Federal gun permits soared over the last several several year, growing as much as 19 percent in 2013 when they hit a peak of 21.09 million.