Dronemaker AeroVironment Climbs 19% as Pentagon Races to Expand UAV Fleet

For a company whose name sounds like a painfully eco-conscious chocolate bar, AeroVironment had a pretty tasty Tuesday.

Shares in the dronemaker (not candymaker) closed up 19% as an earnings report that blew away Wall Street’s forecasts marshaled a fierce rally. It couldn’t have come at a better time.

Droning On

AeroVironment had a rough few innings leading into its quarterly report. ​​Earlier this year, the US Space Force canceled a $1.7 billion contract for the firm to supply high-tech antennas for military satellites, prompting a 17% plunge for the stock. (On Tuesday, securities law firm Bleichmar Fonti & Auld said a class action suit has been filed alleging AeroVironment was not forthcoming about the “significant likelihood” of competition for the contract; AeroVironment didn’t reply to a request for comment.)

Last month, AeroVironment disclosed an $89 million accounting error that impacted its reporting for the nine months leading to January 31, adding its earnings reports for that period “should no longer be relied upon.” This week came the relief: AeroVironment reported Monday that revenue in its latest quarter more than doubled year-over-year to $642 million, a supersonic leap beyond Wall Street’s $556 million projection. Net income more than tripled to $63.2 million, or $1.25 per share. While its full-year sales forecast of $2.2 billion was slightly below what analysts had hoped, many remain convinced that AeroVironment is a worthy investment. It makes offensive and defensive drones, which conflicts in Ukraine and Iran have highlighted as critical weapons of modern warfare, as well as energy weapons and space comms equipment through its acquisition of BlueHalo last year. Even though it lost the Space Force contract, a government-backed windfall could be in store:

• The White House requested $67 billion in supplemental military funds to cover costs for the conflict in Iran and is seeking an unprecedented $1.5 trillion defense budget for the 2027 fiscal year.
• The budget follows up on an executive order in which the White House ordered the US to expand military drone manufacturing.

Domino Drone Effect: On Tuesday, dronemakers Kratos and Red Cat rose 6.2% and 3.2%, respectively, while drone components supplier Unusual Machines rose 16%, no doubt because investors were encouraged by AeroVironment’s big sales number. As for AeroVironment, the average target price out of 18 analysts is $251, implying a 50% upside. Life is a box of chocolates if you’re in the drone-making business.