Smith & Wesson Stock Plunges. Cowen Cuts Price Target on Inventory Issues.

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National Rifle Association members look over pistols in a Smith & Wesson display.


Scott Olson/Getty Images

Smith & Wesson Brands

was falling sharply on Friday after analysts reduced their rating on the stock following disappointing earnings from the firearms manufacturer.

Analysts at Cowen reduced their rating to Market Perform from Outperform and cut the price target to $22 from $38. Cowen cited management guidance that indicated third-quarter production would “be down 27% while it builds its own inventory to meet market demand.”

Smith & Wesson (ticker: SWBI) plummeted 24.4% to $17.31 on Friday.

The company reported adjusted earnings for the fiscal second quarter of $1.13 a share, below estimates of $1.29. Sales in the quarter were $230.5 million, below analysts’ forecasts of $265 million and down roughly 7% from $248.7 million reported the same period a year earlier.

The company faces tough comparisons with the year-earlier third quarter, Cowen said.

The analysts estimate third-quarter sales for Smith & Wesson at $180 million. Smith & Wesson reported $257.6 million in sales a year earlier as it benefited from an increase in consumer demand.

That demand was driven “by the height of the pandemic, a recent change in the presidency, civil unrest, and virtually no inventory in the channel,” said Deana McPherson, chief financial officer at Smith & Wesson.

“None of these factors exist in our current third quarter,” McPherson added in the company’s conference call.

Smith & Wesson said it expects to continue building internal inventory in the third quarter in an effort to restock from last year’s “complete depletion of finished goods inventory and due to our mitigation of supply-chain issues that our manufacturers have been dealing with over the last several months.”

Cowen analyst Cai von Rumohr also said that the “uptick in channel stocks and SWBI’s own inventory also could put the company in a position where it is forced to cut prices to maintain share — the generic risk for gun makers.”

Bottom line “it’s unclear what will turn investor psychology on the stock, particularly given increasing focus on ESG issues,” Cowen added.

Write to Karishma Vanjani at karishma.vanjani@dowjones.com

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