Smith & Wesson gains on fears of Obama gun control

BANGALORE (Reuters) - Barack Obama hasn't made any noticeable moves to restrict firearms during his first two months in the White House, but America's gun owners, historically distrustful of Democratic presidents, aren't taking any chances.

Gun sales have boomed in the past four months, boosting profits at gun-maker Smith & Wesson Corp (SWHC.O), whose stock price has more than tripled from a low hit just before last November's election.

"I have been in business for years, and (gun sales are) a lot higher than at other times," said gun-shop owner Darrin Green, who owns Double Eagle Firearms Inc in Arkansas City, Kansas. Green said sales of handguns at his store have risen about 80 percent since November.

"I don't have any in stock -- I can't keep them in stock."

Eric Wold, an analyst with Merriman Curhan Ford, said the trend would translate directly into benefits for Smith & Wesson, the U.S. leader in handguns.

"The boost is really because people still don't know what the Obama administration will do," Wold said. "So instead of trying to guess, you just buy anything while you can."

Last Thursday, Smith & Wesson reported a higher-than-expected profit for the quarter ended January 31, helped by a 62 percent growth in sales of handguns and tactical rifles.

Green said he has a backlog of more than 50 orders for Smith & Wesson handguns, compared with an inventory of 200 guns in November.

Recent data from the FBI's National Instant Criminal Background Check System (NICS) show background checks for firearm sales jumped 24 percent in January and 23.3 percent in February compared with a year earlier.

NICS background checks are necessary for individuals buying firearms from federally licensed retailers, and are a strong indicator of the number of actual sales.

Some experts also think that the unsettled economic conditions make people more concerned about increased crime rates, thus boosting gun sales.

"There hasn't been any unrest, there hasn't been any increase in crime, but concerns about that potential is one reason" for the higher sales, Wold said.

HITTING THE BULLSEYE

"Smith & Wesson's product mix makes it a winner," Wedbush Morgan Securities analyst Rommel Dionisio said.

The areas that are hottest within the firearms industry, such as high-capacity rifles, are the areas where Smith & Wesson tends to have a large presence, he said.

The 157-year-old company launched several new models in January and expects demand to rise for at least the next couple of quarters.

For the third quarter, sales of both Smith & Wesson pistols and revolvers were up around 45 percent, while sales of tactical rifles doubled.

Analysts also see Smith & Wesson benefiting from the recently enacted economic stimulus bill, which steers $4 billion to state, local and tribal law enforcement.

"Over the past couple of years, the company has been winning more than 80 percent of every law-enforcement and pistol contract coming up for bid," Wold said.

Combining the potential benefits from hiring additional police officers and an accelerated gun-replacement cycle, Wold estimates incremental revenue of as much as $45 million to $147 million in the next two years for the company.

STRAW-MAN VILLAIN?

However, opinions vary on whether stricter laws are in the offing.

The four-million-member National Rifle Association is convinced they are, and vows to fight any attempt to curb gun ownership.

"We believe that the Obama administration will try to make gun laws in this country more restrictive," National Rifle Association spokesman Andrew Arulanandam said. "We will do what we have done all along, which is to fight for the rights of law-abiding Americans."

But others think such fears are overblown.

"I think the industry has set up a straw-man villain -- the possibility of major policy changes, when that's not likely to happen," Garen Wintemute, director of the Violence Prevention Research Program at the University of California's Davis School of Medicine, said.

"Guns are consumer products, and this is just one more case of follow the money."

(Editing by Anthony Kurian, Vinu Pilakkott)