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Sturm, Ruger (RGR) Q1 Earnings: Stock to Pull a Surprise?

Sturm, Ruger & Company RGR is scheduled to release first-quarter 2016 financial results on May 2.

Last quarter, the company delivered a positive earnings surprise of 17.33%. The four-quarter trailing average surprise is a positive 10.20%. Let's see how things are shaping up for this announcement.

Factors at Play

Sturm, Ruger has been witnessing strong demand for firearms, especially those used for self-defense such as centerfire pistols. This increase in demand is driving sell-through across the channels and has aided to reduce the company's inventory levels. During its fourth-quarter earnings call, the company said that it expects strong demand for both self-defense firearms and new products in the beginning of 2016.

According to the FBI's National Instant Criminal Background Check System ("NICS"), in the first quarter of 2016 ending Mar 31, 2016, permit applications saw growth of 36.1% year over year and 2% sequentially. Though it is not possible to draw a one-to-one co-relation between the NICS report and the number of firearms sold, any upward or downward movement of firearm background checks has been seen to have a similar impact on firearm sales.

The company continues to invest in new product development, in addition to boosting the capacity of certain established products which already enjoy robust demand. These initiatives will likely drive top-line growth at Sturm, Ruger.

Meanwhile, Sturm, Ruger faces stiff competition from other firearm companies like Smith & Wesson Holding Corp. SWHC, and Vista Outdoor VSTO. Its competitors may have more extensive or specialized products, which could hurt the Sturm, Ruger 's financial performance.

Earnings Whispers

Our proven model does not conclusively show that Sturm, Ruger & Company is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below.

Zacks ESP: The company has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 96 cents.

Zacks Rank: Sturm, Ruger carries a Zacks Rank #2, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

A Peer Release

Louisiana-based Pool Corp.'s POOL first-quarter of 38 cents per share surpassed the Zacks Consensus Estimate of 25 cents by a wide 52%. Reported earnings, however,surged 100% from the prior-year quarter figure of 19 cents.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
POOL CORP (POOL): Free Stock Analysis Report
STURM RUGER&CO (RGR): Free Stock Analysis Report
SMITH & WESSON (SWHC): Free Stock Analysis Report
VISTA OUTDOOR (VSTO): Free Stock Analysis Report
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