Craig-Hallum Calls a Bottom for Plunging American Outdoor Brands Stock

Several analysts lowered their AOBC price targets after the gunmaker's earnings report

Mar 2, 2018 at 9:04 AM
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Shares of American Outdoor Brands Corp (NASDAQ:AOBC) -- formerly Smith & Wesson -- have plunged 11.8% in electronic trading, after the gunmaker said fiscal third-quarter sales dropped 32.6% year-over-year to $157.4 million, well below analysts' estimate. AOBC also gave a lower-than-expected current-quarter profit forecast, and in the wake of several retailers saying they would raise the age restrictions for those buying firearms following the school shooting in Parkland, Florida, the company said it will assume flattish revenue over the next 12-18 months.

Analysts have been quick to chime in after last night's results, though the reactions have been mixed. While Craig-Hallum upgraded AOBC stock to "buy" from "hold" -- with brokerage firm calling a bottom -- it also lowered its price target to $13 from $15. Cowen and Company and Wedbush also cut their price targets to $12 and $13, respectively.

After closing last night at $9.41, AOBC shares are set to open today's session in territory not seen since January 2013 -- and surrender a long-term foothold atop the $9 mark, which has served as a floor for the stock over the last five years. This negative price action is just more of the same for the gun stock, though, which has already shed more than half its value over the last 12 months.

Some of the recent downside has likely been due to increased selling pressure from shorts. Since its mid-December low, short interest on AOBC has jumped 19.4% to 8.05 million shares -- the most since early August -- and now accounts for 15.1% of the stock's available float. These bearish bettors will be sitting on the sidelines today, though, with American Outdoor Brands all but certain to land on the short-sale restricted list.

And while AOBC shares have historically struggled in the session after earnings, it looks like some of these shorts may have initiated an options hedge against any upside risk. The out-of-the-money March 10 call is home to peak open interest of 12,771 contracts, and Trade-Alert indicates significant buy-to-open activity here in recent weeks.

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