AeroVironment (AVAV) has embarked on a soaring trajectory. Its unmanned aerial vehicles (UAVs) are making a significant mark in the defense and commercial sectors with their intelligent, multi-mission autonomous robotic systems designed for conflict scenarios, which have proven successful in real-world applications like Ukraine. The company’s robust financial performance, marked by top-and-bottom-line expectation beats in the last quarter, is a testament to its growing dominance in the burgeoning drone industry.
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With a notable 56% surge in its stock over the past year and an anticipated 30% upside potential, the company is well-positioned to capitalize on the escalating demand for advanced drone technology. The stock is a compelling option for investors interested in Aerospace and defense stocks with long-term upside potential.
AeroVironmen’s Win Put on Hold
AeroVironment is a global leader in developing autonomous robotic systems for defense, government, and commercial sectors. The company is known for its applications at the crossroads of robotics, AI, sensors, software analytics, and connectivity.
Recently, the U.S. Army has granted AeroVironment a five-year Indefinite Delivery, Indefinite Quantity (IDIQ) contract for its Directed Requirement (DR) for Lethal Unmanned Systems (LUS), with a contract ceiling value of $990 million.
Deliveries for AeroVironment’s Switchblade systems were expected to begin in the coming months. However, the contract has been contested, with a complaint filed with the U.S. Government Accountability Office challenging the U.S. Department of the Army’s decision to award a contract to AeroVironment as the sole source. A stop-work order has been placed on the contract, pending a GAO decision expected by December 16, 2024. While this order does not affect the company’s other contracts or commitments, the news has resulted in a 20% drop in the share price over the past 90 days.
AeroVironment’s Recent Financial Results & Outlook
The company recently released its Q1 fiscal 2025 results. Revenue of $189.5 million marked a 24% year-over-year increase while beating analysts’ expectations by $3.96 million. The rise is attributed to higher product sales, predominantly in the Loitering Munitions Systems (LMS) and UnCrewed Systems (UxS) segments, which witnessed 68% and 22% growth, respectively. However, the MacCready Works (MW) segment reported a 24% revenue decrease.
On the operations side, the income was reported at $23.1 million, a decrease from the previous year due to rising Selling, General, and Administrative (SG&A) expenses and Research and Development (R&D) costs. Net income stood at $21.2 million, with non-GAAP earnings per share (EPS) of $0.89, beating consensus projections by $0.27.
As of the quarter’s end, the funded backlog was $372.9 million, down from $400.2 million compared to the end of April 2024. This backlog includes only the initial funding for specific key projects and does not include the pending U.S. Army award.
Following first-quarter results, AVUV’s management has issued guidance for the full fiscal year 2025, anticipating revenue to range from $790 million to $820 million. Net income is predicted to be between $74 million and $83 million. The company also projects a Non-GAAP adjusted EBITDA of $143 million to $153 million. Earnings per diluted share are expected to range from $3.18 to $3.49.
What Is the Price Target for AVAV Stock?
The stock has been on an upward trend, climbing 103% over the past three years. It trades in the upper half of its 52-week price range of $104.67 – $224.00 and demonstrates positive price momentum by trading above its 20-day (185.74) and 50-day (182.97) moving averages. Reflecting its growth potential, the stock trades at a relative premium to industry peers, with a P/S ratio of 6.4x compared to the Aerospace & Defense industry average of 2.1x.
Analysts covering the company have been constructive on AVUV stock. For instance, RBC Capital analyst Kenneth Herbert, a five-star analyst according to Tipranks’ ratings, recently reiterated an Outperform rating on the shares with a price target of $215, noting the GAO’s stop work order on the $990 million Army IDIQ award is a likely headwind to revenue timing. Still, the company has a strong case for winning the protest.
AeroVironment is rated a Strong Buy based on six analysts’ recent recommendations and price targets. The average price target for AVAV stock is $225.20, representing a potential 28.72% upside from current levels.
Final Analysis on AVAV
AeroVironment has proven to be an innovative leader, with the success of its UAVs in the commercial and defense sectors highlighting the company’s strong market position. Despite a recent slowdown due to a GAO review holdup, the company is poised for a robust rebound, with a projected 30% upside potential. This sustained growth and future prospects make AVAV an attractive choice for investors looking to dive into Aerospace and defense stocks.
