Smith & Wesson (SWHC), Sturm, Ruger (RGR) Fall as FBI Background Checks Growth Slows

October 3, 2012 11:24 AM EDT
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Shares of gun makers Smith & Wesson Holding Corporation (NASDAQ: SWHC) and Sturm, Ruger & Co. Inc. (NYSE: RGR) are lower early Wednesday after an analyst at Benchmark noted that FBI background checks continue to grow, just at a slower rate.

According to the firm, adjusted FBI background checks rose 14.7% in September. While strong, September represents the second lowest Adjusted NICS growth rate this year, second to April’s 10.5% growth.

"While this growth slowdown should place additional scrutiny on the next month’s NICS data to determine a trend, we note that April's slower 10.5% growth rate came after 31% and 20% growth numbers in February and March, possibly due to depleted retail inventory from the stronger prior months," analyst Mike Greene notes. "Prior to last month, NICS had grown at a 20%+ rate since May."

Greene noted a slowdown in the Northeast, which grew just 7.6% in September versus the region's 27% year-to-date growth rate. Looking deeper, Long Guns checks in the Northeast were up only 2.5% y/y, driven by an 8% decline in Pennsylvania. Handguns on the other hand were up 26% in PA this month, above the composite 23% Handgun growth figure.

Greene believes adjusted FBI background checks (NICS) are the best available proxy for retail firearms sales and are the best indicator of the current state of the retail market, since RGR and SWHC revenue represents sales to distributors, not actual retail sales.

Both RGR and SWHC are down about 4 percent mid-day Wednesday

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