Sturm, Ruger & Company is engaged in the design, manufacture, and sale of firearms to domestic customers. Co. has two reportable operating segments: firearms and investment castings. The firearms segment manufactures and sells rifles, pistols, revolvers, and shotguns principally to a range of licensed independent wholesale distributors primarily located in the U.S., under the Ruger name and trademark. The investment castings segment manufactures and sells investment castings made from steel alloys for both outside customers and internal use in the firearms segment. Co.'s firearms are sold through a range of independent wholesale distributors primarily to the commercial sporting market.
In our opinion RGR does not have an economic moat. RGR relies on superior execution to drive success.
RGR has been performing well in 2015. We feel this is due to investor optimism that the firearms industry is poised for solid growth. Earnings may continue to struggle in 2015. Earnings hit a peak in 2013 as it now seems consumers stocked up on their purchases of guns and related ammunition. We look for growth of earnings to stabilize in 2016. The trends that are emerging ought to continue next year, while a decent economic backdrop gives us increased confidence in our earnings forecast, given that firearms are discretionary purchases. A debt-free balance sheet is certainly a positive. We look for Sturm to continue to aggressively invest in R&D in order to churn out new products in this highly competitive industry. The dividend (which varies, and is targeted at 40% of earnings) should be well covered by healthy cash flow from operations. These shares still have above-average 3- to 5-year appreciation potential.
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Increased focus on research and development helped RGR build broad product portfolio
Broad portfolio of firearms catering to needs of diverse customer segments
Robust financial performance
High dependence on the US market
Limited production capacity
Litigations and lawsuits
Intense competition could lead to price war
Stringent rules and regulations
Increasing mass shooting incidents could trigger more governmental restriction on sale of weapons in the US
Flourishing civilian gun market in the US Positive outlook for global small arms market
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The information presented in this report has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guranteed. All material is subject to change without notice. The views and opinions expressed are those of Focused Stock Research and/or WALT ST Investment Management, Ltd. and in no way reflect the views and opinions of Investment Consultants nor their Broker Dealers.