Shares of gun makers soar as Obama tightens firearm rules

Shares of gun manufacturers soared again on Tuesday after President Barack Obama unveiled gun control measures and Smith & Wesson Holding Corp released a more bullish financial outlook.

Smith & Wesson shares were up 12.2 percent to $26.12 in morning trade after touching a record high of $26.54 earlier in the session. Shares of rival Sturm Ruger & Co jumped 7.4 percent to $65.95 after rising to a 1-1/2-year high of $66.93.

The White House unveiled measures on Monday that would require more gun sellers to get licenses and more gun buyers to undergo background checks.

In remarks from the White House set for 11:40 a.m. EST (1640 GMT), Obama will discuss his executive action.

"Based on the past multiple years, when gun control becomes a big political topic in the headlines, these stocks do well," said Chris Krueger, an analyst at Lake Street Capital Markets, noting that it leads to speculation that those people inclined to buy firearms will do so ahead of new restrictions.

Late on Monday, Smith & Wesson boosted its third quarter and full fiscal year sales and earnings outlook. The company said that "the sell-through rate of its products at distribution has been stronger than originally anticipated."

In another boost to the industry, data released on Monday from the FBI's Adjusted National Instant Criminal Background Check System (NICS), which serves as a proxy to overall consumer demand in the firearms industry, showed a jump of 37.6 percent in December.

Following the NICS data and increased outlook from Smith & Wesson, BB&T Capital Markets analyst Brian Ruttenbur upgraded his rating on Smith & Wesson shares to "buy" from "hold" and raised his price target on Ruger shares to $70 from $63.

"Many demand drivers (Presidential elections, potential regulations, and new product introductions) should allow for very strong top- and bottom-line growth for (Ruger)," Ruttenbur said in a research note.