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Firearm stocks misfire on report suggesting sales will slow in 2017

Gun enthusiasts look over Smith & Wesson pistols at the NRA Annual Meetings and Exhibits on May 21, 2016, in Louisville, Kentucky.
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Gun enthusiasts look over Smith & Wesson pistols at the NRA Annual Meetings and Exhibits on May 21, 2016, in Louisville, Kentucky.

Shares of major gun makers were down as much as 2 percent Tuesday on a report industry sales are likely to cool off next year.

In a research note Tuesday, Wunderlich Securities analyst Rommel Dionisio predicted industry sales are "likely to slow, following unusually high growth in 2016."

In late-morning trading, Smith & Wesson shares slipped more than 2 percent and Sturm Ruger was off about 1.6 percent. But by early afternoon, the stocks recovered some of the lost ground.

"This past year, the firearms market experienced unusual demand spikes following certain terrorist incidents," said Dionisio. "Thus, not only does the industry face difficult [year-over-year] comparisons, beginning in December, but also may have seen pull forward of consumer demand from 2017 into 2016."

The Wunderlich analyst also said the gun industry's big trade show in Las Vegas is around the corner and new products scheduled to hit the market in 2017 could present headwinds for industry giant Smith & Wesson, which plans to change its name to American Outdoor Brands effective Jan. 1. He has a hold investment rating on Smith & Wesson.

"Given the upcoming mid-January Shot Show, the firearms industry's most important annual trade show, several prominent competitors have already begun to unveil new products for 2017," Dionisio said.

"The flurry of major new product introductions from leading players in the field into the two fastest-growing categories of firearms, modern sporting rifles and compact/concealed carry handguns, appear meaningfully more competitive than usual, which could challenge Smith & Wesson's market share, which had been rising impressively the past several years."

Officials from Smith & Wesson and Ruger were not immediately available for comment.

Springfield Armory, a privately based firearms maker known for its pistols, is releasing an AR-15-style rifle next year and the so-called Saint series product is expected to have a lower sticker price in the modern sporting rifle, or MSR, category. Vista Outdoor's Savage Arms manufacturer also is teasing a new MSR product on its website for roll out in January.

Smith & Wesson's long-gun sales doubled in its second quarter, which ended in October, although handguns still accounted for about 60 percent of its total sales. The company, which has been taking share in both long-gun and handgun sales in recent months, is expected to introduce an updated M&P pistol product at the Shot Show.