By Tomi Kilgore, MarketWatch
Shares of gun makers dropped sharply Wednesday, as the companies responding to the recent mass-shooting tragedy now includes a firearms seller.
Shares of Smith & Wesson parent American Outdoor Brands Corp. /zigman2/quotes/202273249/composite AOBC +1.72% slumped 3.2% to $9.00, the lowest closing price May 29, 2013.
Sturm, Ruger & Co. Inc.’s /zigman2/quotes/200036418/composite RGR +1.62% stock tumbled 6.6% to $43.05, the lowest close since Feb. 20, 2015.
And Vista Outdoor Inc. /zigman2/quotes/205852373/composite VSTO -1.67% shares shed 4.2%, and have tumbled 13.6% over the past seven sessions.
Earlier Wednesday, Dick’s Sporting Goods Inc. /zigman2/quotes/200566298/composite DKS -0.35% said it would no longer sell assault-style rifles or high-capacity magazines, and stop selling guns to people younger than 21. The company’s statement included a call to Congress to enact gun-reform measures.
Last week, a number of companies in different sectors cut promotional ties with the National Rifle Association, in the wake of the Feb. 14 mass shooting at a Florida high school.
The selloff in gun maker stocks Wednesday, and over the past week, could mark a change in market dynamics. Historically, analysts have said the regulatory environment is among the biggest drivers of demand for guns. Concerns over tighter regulations had boosted gun sales and share prices in the past, but those fears have faded since President Donald Trump was elected and share prices have slumped.
But after the Feb. 14 tragedy, the stocks rose for no more than three days before selling off.
Meanwhile, Dick’s Sporting Goods’ stock rose 0.7% on Wednesday, after falling 5.5% over the previous eight sessions. It has gained 14.2% over the past three months, while the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.47% has tacked on 3.3%.
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Analyst James Hardiman at Webush Morgan cut his price target on American Outdoor Brands stock to $15.00 from $19.50, but maintained his bullish outperform rating, saying he continues to believe there is “significant upside” as industry dynamics begin to stabilize and improve.
“While there are an unprecedented number of crosswinds affecting not only demand but perception, we continue to believe that these shares represent significant long-term value, as firearm demand is going nowhere, and the current series of events is likely to eventually give way to a much-more favorable operating environment, although continued patience will be necessary,” Hardiman wrote in a note to clients Tuesday.
He said he still believes that “truly meaningful gun legislation is unlikely,” and even less likely would be an assault weapons ban. He said that while a ban would represent a “material hit” to the company’s earnings “potential,” the potential impact is “overstated” in investors’ minds.
“We estimate that modern sporting rifles (aka assault rifles) account for roughly 10% (and shrinking) of sales and an even smaller portion of profits,” Hardiman wrote.