So far, the widespread use of drones has been key during the Ukraine conflict. AeroVironment (NASDAQ: AVAV), an aerospace and defense sector player, has gained prominence with its innovative use of self-destructing drones in warfare. However, the company’s curious case consists of doubled revenues over the past few years, a share price surge of nearly 80% over the past year, and expectations exceeded with top-and-bottom-line beats for the last quarter. Yet, the stock has declined by over 10%.
Investors have examined the finer details of the announced financials, specifically the news of potentially losing a key contract to a competitor. The case for further growth and upside participation of the shares is compelling, yet they trade at a premium to industry peers, suggesting investors might want to hold off and get a better sense of this inflection point and shift in momentum.
AeroVironment’s Success Breeds Competition
AeroVironment provides technology solutions integrating robotics, AI, software analytics, and connectivity to a diverse clientele that includes defense and government agencies as well as commercial sectors. The company is known for its focus on unmanned aircraft systems (UAS), unmanned ground vehicles (UGV), loitering munition systems (LMS), and high-altitude pseudo-satellites (HAPS).
AVAV has seen new orders connected to recently announced program wins, such as the LASSO program, OPF-L program, the Replicator Initiative, the Ukraine Aid Initiative, and a Switchblade 300 and 600 order from Lithuania. However, news that a $300 million deal been approved for AeroVironment’s competitor, Anduril Industries, to sell drones to Taiwan, in potentially one of the biggest transactions in the drone industry to date, has put the market on notice of rising competition in the space.
AeroVironment’s Recent Financial Results & Outlook
AeroVironment recently announced financial results for the fiscal fourth quarter of 2024. The company reported quarterly revenue of $196.98 million, exceeding analysts’ estimates of $188.56 million and showing a 6% year-over-year increase from $186 million posted in Q4 FY2023. The increase in revenue for the fourth quarter of fiscal 2024 was mainly due to higher product sales, although partially offset by a decrease in service revenue.
Fiscal year revenue of $716.7 million marked a 33% year-over-year increase. For the quarter, net income was $6.0 million and adjusted EBITDA was $22.2 million, while for the fiscal year, net income and adjusted EBITDA were reported to be $60.0 million and $127.8 million, respectively. Earnings per share (EPS) for the quarter of $0.43 surpassed analysts estimate of $0.22.
At the quarter’s end, the funded backlog, which constitutes orders for which funds have already been appropriated, stood at $400.2 million. This contrasts with the end of Q4 of the previous year when the funded backlog was higher at $424.1 million.
Going forward, management has given guidance for approximately 12% top-line growth for the Fiscal year 2025, with anticipated revenue to range between $790 million and $820 million and net income expected to land between $74 million and $83 million. Projected non-GAAP adjusted EBITDA for the future fiscal year is between $143 million and $153 million, while non-GAAP earnings per diluted share are projected to be between $3.18 and $3.49.
What Is the Price Target for AVAV Stock?
Analysts following the company have been bullish on the stock. For example, RBC Capital analyst Kenneth Herbert, a five-star analyst according to Tipranks ratings, recently reiterated an Outperform rating and $200 price target on the shares. He noted the company’s long-term outlook, doubling its core capabilities while expanding to related markets, targeting growth of its current $12B total addressable market to $30B.
AeroVironment is rated a Strong Buy overall, based on the recommendations and price targets recently issued by three analysts. The average price target for AVAV stock is $225.00, representing a potential upside of 28.08% from current levels.
The stock has been on an extended upswing, climbing roughly 230% in the past five years. It trades in the upper half of its 52-week price range of $91.00 – $224.00 and appears relatively richly valued, with a P/S ratio of 6.7x compared to the Aerospace & Defense industry average of 2x.
AVAV in Summary
AeroVironment has gained recognition in the aerospace and defense sector for its pioneering use of self-destructing drones. After a nearly 80% surge in share price, the stock has seen a decline recently of over 10% as investors consider the current market dynamic and future competition in the sector. Despite this, AeroVironment maintains a leading position in the industry, with robust goals for continued growth in the market.
However, with its shares trading at a premium to industry counterparts, investors may want to take a cautious approach and look for the company to stabilize the share price based on ongoing positive performance.
