kenlh/iStock via Getty Images
It’s all mirror, mirror on the wall because beauty is power the same way money is power the same way a gun is power.”― Chuck Palahniuk.
Today, we put Sturm, Ruger & Company, Inc. (NYSE:RGR) in the spotlight. The stock plunged after third quarter results did not meet expectations in early November. The company is somewhat unique as it tries to pay out 40% of its earnings in dividends. After lifting its annual payout by just over 12% last summer, the company then cut the previous quarterly payout by just over half in November following third quarter numbers. Based on that reduced quarterly dividend, the shares yield a bit over one and a half percent. Fourth quarter results are on the docket next month. What’s ahead for this famous gunsmith in 2024? An analysis follows below.
Seeking Alpha
Company Overview:
The well-known gun & ammo maker operates out from two primary business divisions: Firearms and Castings. The company is located in Southport, CT and designs, manufactures, and markets firearms under the famous Ruger name. Sturm, Ruger & Company has numerous products on the market. These include single-shot, autoloading, bolt-action, and sporting rifles as well as firearms accessories and replacement parts The stock trades just under $45.00 a share and sports an approximate market capitalization of just $800 million.
Third Quarter Results:
The company posted its Q3 numbers on November 2nd. Sturm, Ruger & Company delivered a GAAP profit of 42 cents a share. However, revenues fell just over 13% on a year-over-year basis to just under $121 million, this was more than $17 million under the consensus estimate. Management blamed a “promotion rich environment” due to tepid gun demand during the quarter for the disappointing revenues.
Partly as a result of this increased promotional activity, gross margins fell to 20% during the quarter from 28% in the same period a year ago. A product shift to lower margin products as well as cost increases in some key inputs like wages and materials also contributed to the decline in the margins during the quarter.
Analyst Commentary & Balance Sheet:
I can find only one analyst firm that has offered up coverage on this gun maker over the past 12 months. That is Lake Street, which reissued its Buy rating and $64 price target right after third quarter results posted.
Approximately three percent of the outstanding float in the shares is currently held short. The CEO sold just over $535,000 in holdings last August. Other insiders disposed of just less than $200,000 collectively in October. That was the only insider activity in the shares in 2023. Sturm, Ruger & Company exited the third quarter with approximately $120 million in cash and marketable securities against no long-term debt. In the first nine months of FY2023, leadership returned nearly $108 million to shareholders in the form of dividends. This included a “special dividend” of five bucks a share last January.
Verdict:
The company made $4.96 a share in FY2022 on just over $595 million in revenue. The current analyst consensus has Sturm, Ruger & Company seeing profits fall to $2.80 a share in FY2023 as sales decline to $547 million. They project that earnings will rebound to $3.46 a share in FY2024 on a three to four percent rise in sales.
Sturm, Ruger & Company, Inc. management is shareholder friendly, has a very clean balance sheet and FY2024 is projected to be a better year for the company. The shares sell at approximately 16 times FY2023E EPS, which makes the stock more than fairly valued in light of its recent disappointing third quarter. Another set of “fresh” data points will be available to investors when the company’s posts Q4 results in February.
I prefer Smith & Wesson Brands, Inc. (SWBI) in this space. The company is in the middle of the migration of its headquarters from Massachusetts to Tennessee. This will result in lower operating costs and regulatory friction on the state level. Earnings are also projected to have a much sharper rebound in FY2024. SWBI goes for just under 14 times those profit projections and has a near 3.6% dividend yield to boot.
The fascination of shooting as a sport depends almost wholly on whether you are at the right or wrong end of the gun.”― P.G. Wodehouse.
