AeroVironment shares rise to new highs, more gains on the way

AeroVironment NASDAQ: OPEN it’s not a new company or even cutting-edge technology, but it has matured into an in-demand supplier of drones and unmanned defense systems. The combination of improving technologies and global demand for weapons products has driven earnings to record highs, and the stock price is following suit. Because the company is experiencing significant improvement in profitability, has strong prospects for continued success, and is driving significant improvements in shareholder value, the stock price could double again over the next few years.

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

AeroVironment has a record quarter: Raises guidance

AeroVironment was expected to post a solid quarter, but the actual results put even the whispered numbers to shame. The company reported net revenue of $186.6 million, a gain of 38.8% over last year, beating the Marketbeat.com consensus by 850 basis points. The gains were driven by record sales in the loitering munition systems segment, up 140% year-over-year, and a 23% increase in unmanned systems.

Loitering munition systems consist of drone-like missiles that can remain in place until needed, flying in circles or used to gather intelligence. When targets of opportunity present themselves, the LMS can activate and crash kamikaze style into the target. LMS sales are expected to remain strong into 2024. As for product and service sales, product sales grew at record levels and were offset by a slowdown in services.

The margin news is also impressive. The company expanded its gross and operating margins despite rising costs and spending due to improved leverage. Gross margin expanded by 200 basis points to drive a nearly 100% increase in adjusted earnings. GAAP earnings reverse the prior-year quarter’s loss, while adjusted EPS of $0.63 is up from $0.33 last year and beat consensus of $0.29, leading the company to increase the guidelines for the year.

The guidelines are also favorable and provide for the increase and reduction of the revenue and profit spread. Full-year revenues are expected to range between $700 and $710 with adjusted EPS between $2.69 and $2.83, which are above pre-release consensus figures, leading analysts to increase their outcome estimates; upward revisions to the share price target are also expected.

Analyst sentiment lags the market for AeroVironment stock

Analysts support AeroVironment and have raised their price target about 25% over the past year, but they lag the market. The consensus implied a slight bearishness for the market before the third quarter release, which widened to 15% after the release, but that is expected to change in the coming days. The question is, how big will the upward revisions be? Guidance places adjusted P/E near 56X this year’s results (including post-release price action upside), with an expectation of another 20% growth next year .

At this level, AeroVironment is among the most popular defense stocks on the market, but it offers value. Third quarter and year-to-date results have produced significant cash flows that have enabled debt reduction and a notable improvement in equity. The stock is up 47% over the past year and could continue to grow at a double-digit pace in 2024.

The technical outlook: AeroVironment soars to new highs

AeroVironment stock prices saw a bid in early trading that sent the stock to an all-time high. The early action led the market to rise 15% and trade well above analysts’ highest target. The best projections for future stock prices are technical and based on the magnitude of existing highs and lows. The stock is volatile but trending higher before the release, with the latest rally worth more than 100%. Assuming profit-taking or opportunistic selling of company shares does not limit gains, a move to the $260 level is possible and could be completed by the end of 2025.

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