Gun Firms May ‘Pick Up the Pace’ as Election Nears, Analyst Says

(Bloomberg) -- Firearm and ammunition companies are watching for signs of a mounting focus on guns as the 2020 presidential election draws closer, according to CL King.

“Under the current Republican-dominated political narrative, gun enthusiasts have not engaged in nearly as much panic buying as they did in previous cycles, following mass shootings or in the aftermath of heightened Democrat party rhetoric on tightening gun ownership laws,” analyst Scott Stember said in a note.

“While the lion’s share of industry players prefer not to run their businesses based on politically-fueled surge activity,” he said, many are “prepared to pick up the pace from a production standpoint, if rhetoric in the upcoming election cycle starts to heat up and creates a new lift in demand by way of panic buying.”

Stember wrote his note after attending an event called “Shot Show” in Las Vegas earlier this week, where “many gun/ammunition manufacturers and related accessories companies release the lion’s share of new products for the upcoming selling year.” Shot Show, he said, is considered a “gauge for the health of the industry”; this year’s showed “extremely robust” distributor and dealer traffic, with a record 2,600 companies exhibiting.

“We found most industry players’ (including gun distributors/dealers and gun/ammunition manufacturers) moods to be far better than they were a year ago, now with inventory (at both the distributor and consumer level) finally in balance and with a subsequent abatement in the level of aggressive promotional pricing,” he wrote. Stember added that “most were still cautiously optimistic, awaiting a direction as we enter the current presidential election cycle.”

Potential changes in federal gun laws pose risks for Vista Outdoor Inc. and American Outdoor Brands Corp., he said. CL King rates both neutral. Vista has shed 5.5% so far this year, versus a 1.6% drop for American Outdoor and a 6% gain for Sturm Ruger & Company Inc.

Earlier this month, gun stocks including American Outdoor, Sturm Ruger and Vista climbed after the National Instant Criminal Background Check System reported the eighth straight month of positive year-over-year adjusted background check data.

Stember added an observation about Walmart Inc., which in September said it would curtail ammunition sales after store shootings. “We found from most that the stalwart retailer completed its process of discontinuing the sale of various types of ammo by the end of December,” he said. “The major belief is that the lion’s share of the displaced product (about $150 million to $200 million worth of annualized sales) will simply find other homes and be sold by other outlets over time.” Walmart’s shares have climbed 1% since the end of August.

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