Smith & Wesson Stocks Plunge After Disappointing Earnings and Downgrades

Shares of Smith & Wesson Brands Inc. fell 18% in pre-market trading following the announcement of second-quarter results that missed analysts’ expectations. The gun manufacturer's adjusted earnings per share (EPS) came in at 11 cents, while the Bloomberg consensus forecast was 17 cents based on two estimates. Additionally, reported net sales were $129.7 million, falling short of the $133.7 million forecast. The company also reported an adjusted operating income of $7.91 million, below the expected $9.59 million, and a gross margin of 26.6% compared to the estimated 29.8%.

In light of these results, Craig-Hallum analyst Steve Dyer downgraded Smith & Wesson Brands’ rating from buy to hold, while lowering his price target from $18 to $13. According to Dyer, the downgrade reflects a broader trend in the firearms industry, which has entered a "digestive phase" following years of high purchasing activity. This phase is characterized by a normalization after fears of stricter gun regulations in the 2010s and a surge in purchases triggered by the pandemic in the early 2020s.

A cooling demand for firearms across the industry and an increase in promotions are contributing factors to what Craig-Hallum describes as a "more challenging near-term financial profile" for Smith & Wesson Brands. Despite these unfavorable conditions, the firm maintains a long-term positive outlook for the brand and expects it to continue providing returns to shareholders.

Lake Street Capital Markets LLC analyst Mark Smith also revised his recommendation for the gun manufacturer from buy to hold. Smith's new price target indicates a 4.6% decrease from the last closing price.