Gun stocks lag after gun control bill fails

Posted at 2:57 PM, Apr 18, 2013
and last updated 2013-04-18 14:57:36-04

By Aaron Smith

NEW YORK (CNNMoney) — The U.S. Senate’s defeat of the gun control bill could deal a blow to the gun industry.

It might not seem that way at face value. But on Thursday, the first full session since the bill was defeated, gun stocks lagged, and analysts fear this might be part of a wider trend.

In recent months, the fear of new restrictions has driven sales to all-time highs. Now, that incentive is gone.

“When these things happen, we do see demand slide,” said Neal Dihora of Morningstar, who covers Alliant Techsystems, an aerospace company that also makes guns for the civilian and military markets. “People start hoarding for a while, and as it cools off, they start pulling back and realize they don’t have to fill their basements with ammunition because it will still be there tomorrow.”

Alliant’s stock price dropped more than 2% Thursday, after seeing its shares surge 38% over the last year. Ammunition maker Olin Corp. fell 1.2%, after climbing more than 13% over the last year. Smith & Wesson Holding Corp. managed a 1.3% gain Thursday, while Sturm, Ruger slipped less than 1%.

The stock price for Cabela’s, a retailer dependent on gun sales, dropped nearly 5%.

Obama’s reelection and the Newtown shooting in December made gun enthusiasts fearful that regulations would be tightened. This prompted consumers to buy military-style semiautomatic rifles and high-capacity magazines, the prime targets in the so-called assault rifle ban, until demand overwhelmed supply. Prices jumped sky-high, stock ran out and factories struggled to keep up.

According to the FBI, the 10 top-volume weeks for background checks have occurred since President Obama’s reelection. A report published by Scott Hamman, an analyst for Keybanc Capital Markets, said this was a 26% increase from the year before, “underscoring our belief that current levels of demand are unsustainable over the long term.”

The proposed assault rifle ban ground to a halt Wednesday, when the Senate shot it down, along with a proposed expansion of background checks.

Brian Rafn, a gun industry analyst and director of research at Morgan Dempsey Capital Management, said gun companies are going to have to figure out how to remain profitable, now that the “visceral political craziness is removed from the equation.”

Rafn said the gun industry has enjoyed a boon as new people, including women, have been purchasing guns for the first time. But it’s unclear if they’ll continue to buy guns, ammo and accessories due to a taste for shooting.

“That is really the core question of the new entrants in this market,” said Rafn, adding that the purchasing behavior of these new gun owners will heavily influence the industry’s future.

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