RGR
Sturm, Ruger & Company, Inc.
$40.04
Cyclical & Capital-Intensive
80%
Normalized Earnings × Cycle Multiple
Strong
·
Conviction
Undervalued
Trading 60.4% below fair value
You pay
$40.04
Bear
$83.59
Fair
$101.05
Bull
$118.51
Bear
$83.59
+108.8%
$4.96 × 18x + net cash
Fair
$101.05
+152.4%
$4.96 × 22x + net cash
Bull
$118.51
+196.0%
$4.96 × 26x + net cash
Key Value Driver
Through-cycle normalized EPS ($4.96)
Implied Market Multiple
8.1x
Summary
Our base-case estimate uses Normalized Earnings × Cycle Multiple. We then blend that result with the average analyst price target of $46.00 from 12 analysts, using a 20% weight on analyst consensus. That produces an estimated intrinsic value of $101.05 per share.
Warnings
Price-to-book value of 2.3x is above the normal range for this type of business (0.7x-2.0x). The stock may already price in a strong cycle.
Wall Street's average price target is $46.00 (from 12 analysts). Our estimate is 150% above the consensus -- consider that gap carefully.
Key Risks
- Standard 10-year DCF produces unreliable terminal values for cyclicals
- 'Cheap' P/E at cycle peak is the most common value trap — normalize first
- Captive finance subsidiaries have different risk profiles from manufacturing