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Key Points

  • AeroVironment had a solid quarter with record sales in critical segments. 
  • Despite the ramp in sales, the funded backlog improved by 9.1%, suggesting another strong year ahead. 
  • Improving growth, margin, and shareholder equity suggests this stock could rise 100% or more by the end of next year. 
  • 5 stocks we like better than AeroVironment

AeroVironment NASDAQ: AVAV is not a new company or even a cutting-edge technology, but it has matured into a highly demanded provider of drones and unmanned defense systems. The combination of improving technologies and global demand for war products has driven results to record highs, and the share price is following suit. Because the company is experiencing a significant improvement in profitability, has a solid outlook for continued success, and is driving significant improvements in shareholder value, the stock could double in price again over the next few years. 

“With the increased global demand for our solutions, strong backlog and growing pipeline, AeroVironment remains well positioned for continued growth,” said Wahid Nawabi, AeroVironment CEO. 

AeroVironment Has Record-Setting Quarter: Raises Guidance

AeroVironment was expected to post a solid quarter, but the actual results put even the whisper figures to shame. The company reported $186.6 million in net revenue for a gain of 38.8% over last year, beating the consensus by 850 basis points. The gains were driven by record sales in the Loitering Munitions Systems segment, up 140% YOY and a 23% increase in Unmanned Systems. 

Loitering Munition Systems consist of drone-like missiles that can remain on station until needed., flying in circles or used to gather intel. When targets of opportunity arise, the LMS can go active and crash into the target kamikaze style. Sales of LMS are expected to remain strong in 2024. Regarding product and service sales, product sales grew to record levels and were offset by a slowdown in services. 

Margin news is also impressive. The company widened its gross and operating margins despite increased costs and spending due to improved leverage. The gross margin widened by 200 bps to drive a near-100% increase in adjusted earnings. The GAAP earnings reverse a loss in the prior year’s quarter, while adjusted EPS of $0.63 is up from last year’s $0.33 and outpaced consensus by $0.29, leading the company to increase guidance for the year. 

Guidance is also favorable and includes increasing and narrowing the range for revenue and earnings. Full-year revenue is expected to range from $700 to $710 with adjusted EPS of $2.69 to $2.83, which are above the pre-release consensus figures, leading the analysts to raise their estimates for results; upward revisions to the stock price target are also expected. 

Analysts Sentiment Lags the Market For AeroVironment Stock 

The analysts support AeroVironment and have lifted the price target by about 25% in the last year, but they lag the market. The consensus implied a small downside for the market ahead of the Q3 release, and that has widened to 15% following the release but should change in the coming days. The question is, how big will the upward revisions be? The guidance puts the adjusted P/E near 56X this year’s results (including the post-release pop in price action), with an expectation for another 20% growth next year. 

At this level, AeroVironment is among the most highly valued defense stocks on the market, but it delivers value. The Q3 and YTD results have produced significant cash flows that allowed for debt reduction and an impressive improvement in shareholder equity. Equity is up 47% compared to last year and may continue to rise at a double-digit pace in 2024. 

The Technical Outlook: AeroVironment Flies To New Highs

AeroVironment shares prices caught a bid in early trading that took the stock to an all-time high. The early action has the market up 15% and trading well above the highest analyst target. The best projections for future share prices are technical and based on the magnitude of the existing peaks and troughs. The action is volatile but trending higher ahead of the release, with the latest upswing worth more than 100%. Assuming that profit-taking or opportunistic corporate share sales don’t cap gains, a move to the $260 level is possible and may be completed by the end of 2025. 

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