Jefferies & Co. Reiterates Hold Rating on AeroVironment (AVAV)

Jefferies & CO. is out with a research report this morning, where it reiterates its Hold rating on shares of AeroVironment AVAV; it has a $21.00 price target on the stock. The Jefferies analysts said, “The unpredictability of orders and production across many of AVAV's key products continues to cloud the outlook. The announcement of orders for products such as Global Observer and Switchblade could act as a catalyst for the stock. Although we expect orders will come, we continue to be cautious in the near-term as delayed enactment of both the Supplemental and FY11 DoD budget could put a strain on near term orders and visibility. In addition, a focus by DoD on budget savings could add an extra level of scrutiny to any near term expansion in volumes.” They added, “In the Small Unmanned Aerial System (SUAS) market, AVAV has successfully created a full line-up of UAVs with the Wasp, Raven, and Puma. We believe the full family of small UAV systems linked across a common control station is an attractive proposition for the various government partners, but near term pressure on funding will curtail near term high growth rates. We expect modest revenue growth with Puma, while Raven orders continue to be pushed to the right. Although we expect high single digit growth in Small UAVs, this will act to offset a decline in Global Observer revenues.” The Jefferies analysts also noted, “Our $21 Price Target values AVAV at 13x our FY2011 EPS estimate of $1.05, plus roughly $8 per share of cash on the balance sheet. 13x is generally in line with the small cap defense peer group average multiple on forward earnings, reflecting AVAV's attractive long-term growth potential, offset by the uncertainties facing AVAV's newer programs and technologies over the intermediate-term. Risks include the timing and magnitude of orders on new programs and the possible entry of new competitors.”