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Carolyn Fisher_SWHC Final Presentation
- 1. Smith & Wesson Holding Company Ticker: SWHC Recommendation: Buy $50,000 Carrie Fisher, PT $27
- 2. Overview 2 • Market Capitalization: $1.21B • Current price: $22.35 • 52 Week High/Low: $14.45 - $30.44 • Intrinsic Value: $27 • Upside/Downside: +24% • P/E: 15.52x • Forward P/E: 12.9x • P/B: 4.6 • P/S: 1.8 • SIF Sector: Consumer Discretionary, Industrials
- 5. Product Overview 5 96% 4% % of Revenue Firearms Division Acessories Division 75% 17% 0% 8% Handguns Long Guns Walther Other Products & Services % of Sales Revenue
- 6. Smith & Wesson Holding Company Thesis & Catalysts
- 7. Recommendation Buy: $50,000 7 “As the general election draws closer, we believe fear will be maintained and we therefore believe 2016 will be a banner year for firearms sales.” -James Passeri, TheStreet • Innovation in both product segments • Strong market for continued volume growth • Infant accessories division driving growth • S&W has announced plans to increase size by creating more divisions, namely Manufacturing Services and Shared Services divisions Innovation Strong Market Accessories Growth
- 9. 9 Innovation
- 10. Product Growth 10 Innovation New products at 2016 SHOT® Show across all brands • Smith & Wesson® • M&P® • Performance Center® • Thompson/Center ArmsTM • Battenfeld Technologies, Inc.® and its brands
- 12. Background Checks 12 - 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 NICS Firearm Background Checks March 2015- March 2016 Strong Market
- 13. 13 Strong Market NICS CY FEBRUARY 2016 HANDGUNS +25.3% LONG GUNS +4.4% (Y/Y )
- 14. Accessories Division Expansion 14 • In 2012 males spent on average $545 on gun accessories vs. $554 on the gun • In 2012 females spent on average $457 on gun accessories vs. $469 on the gun Accessories Growth
- 15. Smith & Wesson Holding Company Valuation
- 16. Price Chart 16
- 17. Relative Valuation 17 0% 5% 10% 15% 20% 25% 30% 0 10 20 30 40 50 60 SWHC TASR RGR OA P/E EV/EBITDA Nxt Year Operating Margin
- 18. Financial Performance 18 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 2012 2013 2014 2015 Est. 2016 Gross Profit Margin Profit Margin Operating Margin
- 19. Financial Performance 19 0 20 40 60 80 100 120 140 160 180 200 2012 2013 2014 2015 Free Cash Flow Debt ROE
- 20. Multiple History 20 0 5 10 15 20 25 2012 2013 2014 2015 Est. 2016 P/E P/B P/S EV/EBITDA
- 21. Scenario Analysis 21 P/E P/B P/S Value Upside/ Downside Bull 16 4.2 2 $30 38% Base 14 4.1 1.6 $27 24% Bear 12 4 1.2 $24 9% Assumptions • 3% accessories division growth (conservative) • Average gun sales sustaining • No dividend Issuance
- 22. Risks to Thesis 22 • Gun sales declining • Accessories division not expanding • Legislation tightening/loosening • Supply chain issues
- 23. SWOT Analysis 23 • Growing accessories division • High current consumer discretionary incomeStrengths • Supply not keeping up with demand • SeasonalityWeaknesses • Expanding accessories divisionOpportunities • Political Election • LegislationThreats
- 24. Management 24 James Debney President and CEO • President of firearms division • President of Presto Products Company • Plastic extrusion business Robert J Cicero Chief Compliance Officer and Secretary • Associate General Counsel, Employment, Benefits, Finance, Governance & Compliance at Chemtura Corporation Jeffrey Buchanan CFO and EVP • Attorney at Ballard Spahr LLC • Managing Director at CKS Securities LLC • Chief Financial Officer, SVP, Board Member at Three Five Systems, Inc.
- 26. What is the Street Saying? 26 Wall Street Ratings
- 27. Questions? 27 • Market Capitalization: $1.21B • Current price: $22.35 • 52 Week High/Low: $14.45 - $30.44 • Intrinsic Value: $27 • Upside/Downside: +24% Recommendation: Buy $50,000
- 28. Appendix 28
- 29. Appendix 2 29
Hinweis der Redaktion
- -Founded 1852 - Our export net sales accounted for 4%, 3%, and 3% of total net sales for the fiscal years ended April 30, 2015, 2014, and 2013, respectively (in thousands):
- Foudned in 1852
- -In fiscal 2015, consumer demand for handguns, as reflected in NICS background checks, increased over fiscal 2014, which led to increased sales of our small concealed carry polymer pistols and revolvers. However, those increased sales were more than offset by a decrease in sales of our larger frame M&P branded polymer pistols because a portion of the increased consumer demand for our handguns was satisfied by excess channel inventory. The DRP and BTI Acquisitions resulted in a 5.7% increase in total net sales for fiscal 2015. A reduction in units produced as a result of the lower demand and excess channel inventories negatively impacted our firearm net sales by 16.6%. -During fiscal 2015, 8.2% of our firearm net sales were to state and local law enforcement agencies and the federal government, 4.0% of our firearm net sales were to international customers; and the remaining 87.8% of our firearm net sales were through federal firearm licensees to domestic consumers. Our domestic firearm net sales are primarily made to distributors that sell to licensed dealers that in turn sell to the end users. In some cases, we sell directly to large retailers and dealers.
- Smith & Wesson's also trades at just 17 times forward earnings, which is also reasonable for a company that is expected to post 14% annual earnings growth over the next five years, Rugers its main competition trades at 38 times over earnings The company reported earnings back in March and the actual earnings per share was $0.59 while the consensus estimate was $0.39.
- -Since 2011, we have introduced more than 215 variations of accessories products and we currently hold over 40 patents
- -Introducing the Smith & Wesson SW22 VictoryTM target pistol, the newest addition to the Smith & Wesson line of pistols. The SW22 Victory is a fully featured .22LR pistol with a convertible design suitable for multiple sporting applications. It comes standard with adjustable fiber optic sights and a match grade, interchangeable barrel for superb accuracy at the range or in the field. MSRP $409 -Introducing the next generation M&P 15-22 modern sporting rifle. The M&P 15-22 SPORT is chambered in .22 LR and features a variety of product enhancements, including a new M&P Slim Handguard with Magpul® M-LOKTM system, which allow for a wide range of customization options for a variety of optics and accessories. Other features include front and rear Magpul Folding MBUS® sights standard. MSRP $449 9 New Gun models Launched, with more to come -20% of the market for guns overakll
- 121 new SKU’s successfully launched at the 2016 SHOT SHOW Product development focus on innovation and productivity remain incredibly strong Recent expansions within Engineering team have more than doubled new product introductions
- Earning beat estimates last 7 out of 8 periods Early march 2016 beating earnings per share by $.20 and revenue estimated by 35million
- RGR
- Income from continuing operations was negatively impacted by increased depreciation expense as a result of increased capital spending, including the transition of our ERP system to SAP in fiscal 2014 and acquisition-related costs incurred in fiscal 2015. Our gross margin decreased 6.0 percentage points from the prior fiscal year primarily as a result of a combination of the reduced sales volumes for our higher-margin products, higher manufacturing-related spending relative to sales volumes, additional promotional product discounts, and unfavorable manufacturing fixed-cost absorption for fiscal 2015. As a result of the BTI Acquisition, we recorded $4.2 million of increased cost of goods sold related to a step-up of inventory, which negatively impacted gross margin for our accessories division by 20.1 percentage points and the total company by 0.8 percentage points. The entire step-up of inventory was expensed during fiscal 2015.
- 27%
- -Borrowed $100M toward the acquisition of BTI (the company’s new accessories division)
- Selling of shares from directors/executives
- Target price of 29.33 (Bloomberg)
- -Retailers estimate that ~25% of gun purchases are made by first-time owners -• Long-term quarterly gross margin target in the range of 37% - 41% • Margins vary among quarters due to absorption impacts of seasonality, factory shutdowns, and holidays • Long-term Adjusted EBITDAS margin target above 20%