Strum Ruger & Co (RGR) Q2 Earnings: A Surprise In Store?

Sturm, Ruger & Company (NYSE:RGR) is scheduled to release second-quarter 2016 financial results on Aug 2.

Last quarter, the company delivered a positive earnings surprise of 26.04%. The four-quarter trailing average surprise is a positive 10.07%. Let's see how things are shaping up for this announcement.

Factors at Play

According to the FBI's National Instant Criminal Background Check System ("NICS"), in the second quarter of 2016 ending Jun 2016, permit applications saw a sharp rise of 27.5% year over year, but a decline of 20% sequentially. Though it is not possible to draw a one-to-one co-relation between the NICS report and the number of firearms sold, any upward or downward movement of firearm background checks has been seen to have a similar impact on firearm sales.

Notably, Jun 2016 background checks crushed all-time records, showing a 39% jump year over year and a 14% increase sequentially. There is often a spike in background checks in the wake of mass shootings, as demand for weapons increases amid fear of stricter gun control measures. FBI Background Checks for the month of June may well be a reaction to the mass shooting tragedy in Florida that left 49 people dead and 53 wounded.

The rush could definitely bolster sales for the two publicly traded gun manufacturers, Smith & Wesson Holding Corporation (NASDAQ:SWHC) and Sturm Ruger, in the quarter to be reported. Other stocks that could be impacted by the surge in FBI data are Cabela's Inc. (NYSE:CAB) and Vista Outdoor Inc. (NYSE:VSTO) .

The Zacks Consensus Estimate for second-quarter earnings for Sturm, Ruger is pegged at $1.15 a share, reflecting 26.37% growth year over year.

Earnings Whispers

Our proven model does not conclusively show that Sturm, Ruger is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zacks ESP: Both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $1.15, resulting in an Earnings ESP of 0.00%.

Zacks Rank: Sturm, Ruger has a Zacks Rank #5 (Strong Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when a firm is seeing negative estimate revisions.

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