Sturm, Ruger & Company, Inc. (RGR) is a Connecticut-based firearms manufacturing company that operates in two segments—Firearms and Castings. The company saw tremendous growth in its sales and profitability in its last reported quarter, driven by a surge in demand for firearms. 

RGR’s stock has gained 35.5% over the past year, which can be attributed primarily to the company’s investment in broadening its catalog and its strong earnings growth potential.

The U.S. firearms industry is witnessing huge demand on concerns that President Biden will place greater  restrictions on gun purchases in the future. Furthermore, growing civil unrest has motivated more people to purchase guns for personal and family protection. This industry backdrop should position RGR for sustainable growth  in the future. Given the company’s strong balance sheet, strategic acquisition and expanding product offerings, we think the stock is worth betting on now.

Here is what we think could shape RGR’s performance in the coming months:

Acquisition of Marlin Firearms to Boost Growth

Last year, RGR completed the acquisition of Marlin Firearms, which was previously owned by Remington Outdoor Company, for approximately $28.3 million. The combination  of these leading firearm brands will not only diversify RGR’s product offerings but should also contribute to higher sales. Marlin’s manufacturing facilities are expected to l produce the legendary Marlin rifles for years to come.

Robust Industry Tailwinds

According to the Washington Post’s analysis of federal gun background-check data, more than 2 million firearms were bought in in the U.S. January. In 2020, nearly 23 million firearms were bought, representing an increase of 64% year-over-year. The current surge in demand for firearms in the U.S. is being driven by personal protection needs or fear of violence and the possibility of tighter gun restrictions in the future. With an unprecedented number of individuals choosing to exercise their right to bear arms and purchase firearms and ammunition, the growth in gun sales is expected to continue this year. This  bodes well for firearm manufacturer RGR.

Solid Financials

RGR’s net firearm sales increased 39.3% year-over-year to $565.86 million for the year ended December 31, 2020. Its gross profit grew 92.3% from the year-ago value to $191.44 million. Also, the company’s operating income rose 202.6% year-over-year to $119.15 million, while its net income grew 179.9% from the prior-year quarter to $90.4 million. Its EPS came in at $5.17, representing a year-over-year increase of 179.5%. Also, RGR’s net cash provided by operating activities rose 190% from the year-ago value to $143.81 million.

Favorable Analyst Estimates

Analysts expect RGR’s EPS to rise 27.6% next quarter, ending June 30, 2021, and 2.8% in its fiscal 2021. Also, RGR’s revenue is expected to grow 17.8% in the next quarter and 7.1% in the current year. The stock also beat the Street’s EPS estimates in three of the trailing four quarters.

Consensus Price Target and Rating Reflect Potential Upside

Wall Street analysts expect the stock to hit $82 in the near term, which indicates a potential upside of 16%. RGR has an average broker rating of 1.75, which indicates favorable analyst sentiment.

POWR Ratings Indicate Uncertain Prospects

RGR has an overall rating of B, which translates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. RGR has a Value Grade of B, in sync with the stock’s P/E ratio of 13.89x, which is 32.6% lower than the industry average  20.62x.

In terms of Quality Grade, RGR has an A. Its trailing-12-month EBIT margin of 21% compares favorably with the industry average 5.5%.

Click here to see the additional POWR Ratings for RGR (Stability, Sentiment, and Momentum).

RGR is ranked #7 of 67 stocks in the C-rated Air/Defense Services industry.

If one is  looking for other top-rated stocks in the same industry, with an Overall POWR Rating of A or B, one  can access them here.

Bottom Line

Increased consumer demand for firearms and ammunition as lawmakers once again call for stricter gun regulations in the United States, has bolstered RGR’s fortunes significantly. And the  company’s strategic acquisitions and new product launches should help it drive long-term growth. In addition, we think RGR’s robust financials, and its expected earnings and revenue growth make it a solid investment option right now.

RGR shares were trading at $69.73 per share on Thursday morning, down $0.98 (-1.39%). Year-to-date, RGR has gained 8.24%, versus a 11.31% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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