- Smith & Wesson is undervalued and could be a target for M&A activity, following interest in its competitor Vista Outdoor.
- The competitor has been approached by both strategic acquirers and private equity money, suggesting spread interest for the sector.
- The company’s valuation is low compared to its peers and historical M&A transactions in the industry, suggesting potential for a multiple re-rate.
We think Smith & Wesson (NASDAQ:SWBI) is an undervalued company that could potentially be the target of M&A activity, amid the recent interest in one of its closest competitors: Vista Outdoor. The valuation attached to the company is currently low, as suggested by both public comparables and the multiples of recent takeovers in the industry. Last but not least, the demand for guns seems strong and could sustain SWBI’s growth. We initiate the name with a buy rating and a target price of $18.
An interesting setup: industry takeover movements and strong financial resilience
We have recently followed the deal saga on Vista Outdoor. The company has been in talks to sell its gun business to a foreign buyer, the Czech defense behemoth Czechoslovak Group (CSG). They are one of the largest companies in Europe, with more than $180 billion in revenues, and sell to national armed forces as well as police officers. However, recently a bidding war seems to have started, with firm MNC Capital bidding at $35 per share, and then raising its bid to $37.5. There is clearly a lot of interest in this asset, which is seen as potentially undervalued.
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