As the U.S. continues to make strides in vaccinating its population against COVID-19, activities such as shooting and hunting have returned, resulting in an increasing demand for guns. In addition, gun purchases have risen significantly this year, with many buyers stockpiling guns in anticipation of stricter firearm restrictions under the Biden administration. According to the National Shooting Sports Federation (NSSF), more than two million of the pre-sale background checks in March were for new gun purchases.
The global ammunition market is expected to hit $28.37 billion by 2028, growing at a 3.6% CAGR. Also, small-caliber ammunition penetration is likely to rise in the future due to the growing popularity of sports that use handguns. Gun retailers are expected to witness a substantial surge in sales of rifles too, due to increasing participation in shooting events and increasing consumer interest in hunting activities.
So, Wall Street Analysts are optimistic about the upside potential of several fundamentally sound gun stocks. Two such stocks that they expect to rally more than 20% over the next 12 months are Vista Outdoor Inc. (VSTO) and Sturm, Ruger and Company Inc. (RGR).
Vista Outdoor, Inc. (VSTO)
VSTO is a consumer product designer, producer, and marketer in the outdoor sports and recreation industry. Shooting Sports and Outdoor Products are the two segments in which the Clearfield, Utah company operates. It serves a wide variety of consumer bases, ranging from outdoor enthusiasts, hunters and recreational shooters and athletes to law enforcement and military professionals. In May, the company acquired the e-Bike brand QuietKat and female apparel brand Venor to diversify its own powerhouse brands and boost its portfolio.
During the year ended March 31, 2021, VSTO's net sales increased 26.8% year-over-year to $2.23 billion. Its net income came in at $266.01 million for this period, compared to a $155.08 million net loss in 2020. The company’s EPS came in at $4.44, versus a $2.68 loss per share in the prior-year period. Also, its gross profit surged 76.4% year-over-year to $632.96 million over this period.
VSTO’s EPS is expected to grow 3.3% year-over-year to $3.71 next year. Analysts expect its revenue to increase 10.8% year-over-year to $2.46 billion in its fiscal year 2022. VSTO's stock has gained 172.9% over the past year and 68% year-to-date.
All eight Wall Street analysts that have provided ratings for the stock have rated it Buy. Closing yesterday’s trading session at $39.92, the $49.38 average analyst price target represents a potential 23.7% upside.
VSTO's POWR Ratings reflect this promising outlook. The company has an B overall rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
VSTO has also rated a B grade for Momentum, Value, and Quality. Within the A-rated Athletics & Recreation industry, it is ranked #6 of 34 stocks.
To see additional POWR Ratings for Sentiment, Growth, and Stability for VSTO, click here.
Sturm, Ruger & Company Inc. (RGR)
RGR designs, produces, and distributes guns under the Ruger name and trademark. The Southport, Conn., company operates through two business segments--Firearms and Castings. It distributes its firearms primarily to the commercial sports sector through independent wholesale distributors. It is also involved in the manufacturing and selling of steel investment castings and metal injection molding (MIM) parts.
This month, RGR announced that it had received two Industry Choice Awards. The Ruger Custom Shop Precision Rifle in 6mm Creedmoor was named the 2021 Rifle of the Year, and the MAX-9 was named the 2021 Concealed Carry Pistol of the Year. These accolades should help the company enhance its brand image in the market.
During the fiscal first quarter ended April 3, 2021, RGR’s net sales increased 50.2% year-over-year to $184.38 million. Its operating income grew 157.7% year-over-year to $51.96 million. Its adjusted net income surged 149% from the prior-year quarter to $38.19 million, while EPS increased 148.3% year-over-year to $2.16 over this period.
A $6.76 consensus EPS estimate in the current year represents a 32.8% improvement year-over-year. Likewise, the $683.24 million consensus revenue estimate for its fiscal year 2021 represents a 20.1% increase from the same period last year. The stock has gained 18.7% year-to-date and 17.9% over the past nine months.
The only Wall Street analyst that provided a rating for the stock has rated it Hold. The $100 price target represents a 29.5% potential gain from its last closing price of $77.23.
It is no surprise that RGR has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Quality, and a B for Value. Within the C-rated Air/Defense Services industry, it is ranked #10 of 63 stocks.
In addition to the POWR Ratings grades I have just highlighted, one can see the RGR ratings for Growth, Momentum, Stability, and Sentiment here.
VSTO shares were trading at $40.15 per share on Wednesday morning, up $0.23 (+0.58%). Year-to-date, VSTO has gained 68.98%, versus a 16.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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