Two Gun Makers

Get Forearmed on Two Gun Makers: "

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Get Forearmed on Two Gun Makers
By Jon D. Markman
RealMoney.com Contributor
7/21/2005 7:03 AM EDT


With Harley-Davidson (HDI:NYSE) backfiring and Coca-Cola (KO:NYSE) in the can, the past year hasn't been the greatest for famous American consumer brands associated with the great outdoors and sunny summer months.

But two U.S. icons have started the season off with a bang. Both are small-caps: Smith & Wesson (SWB:NYSE) , maker of the nation's most popular line of revolvers, and Sturm, Ruger & Co. (RGR:NYSE) , maker of the nation's most popular line of pistols.

There are a number of structural, legal and specific reasons why shares of the country's only two public firearms manufacturers are blazin'.
Let's start with Smith & Wesson, probably most famous as the original manufacturer of the powerful .357 Magnum pistol. This is a company that has had more owners over the past 150 years than your basic Saturday night special, but its latest group of executives appears to finally have it on track. Founded in 1852 by Horace Smith and Daniel Wesson, it passed through any number of hands, including earlier incarnations of the auto-parts makers Lear (LEA:NYSE) and Tomkins (TKS:NYSE) , before merging with a small public outfit called Saf-T-Hammer in 2001.

Shares kicked around the $1 level for a while, then spent three years at around $2 to $2.50 before shooting up to the $4.50 zone in the past three months. The stock went up 13% right after the terror attacks in London. Smith & Wesson's new leaders have expanded its focus from its niche in consumer handguns under the Smith & Wesson and Walther brands -- 80%-. . ."

The Military Market
As for the military, the company recently won its first federal contract in 15 years -- a $1.2 million deal to supply 4,750 semiautomatic pistols to the U.S. Army Security Assistance Command, which shipped them to the Afghanistan National Army. Wold notes that with a better lobbying effort in Washington, the company would have been eligible for major deals recently won by foreign competitors, including a $19 million contract to supply 50,000 side arms to the Coalition Provisional Authority in Iraq (that contract was won by Glock); a $24-million contract to supply 65,000 pistols to the U.S. Department of Homeland Security (won by Sigarms); a $4.2 million contract to supply pistols to the U.S. Coast Guard (won by Sigarms); and a contract to supply 18,744 pistols to the U.S. Air Force (won by Beretta).

S&W's effort picked up some firepower last month when the Department of Homeland Security's budget was approved with an amendment that requires federal agencies to buy products made from at least 50% U.S. goods and labor. And its licensing and marketing efforts are beginning to look brighter. It has shed a previously unfocused strategy to bear down on the sort of consumers who have made Nascar the most popular sport in America; it has sponsored a SKI Motorsports-owned Chevrolet on the Busch Series tour, No. 30 on your scorecard, and sells branded merchandise at races.