We've Reached 'Drone Inflection'

• AeroVironment, Inc. AVAV shares are down 23 percent year-to-date and are trading close to the lower end of their 52 week range of $20.12 - $31.94.
• Piper Jaffray’s Troy D. Jensen upgraded the rating for the company from Neutral to Overweight, while establishing a price target of $28.
• Following the decline in shares, the company’s stock appears to be reached an attractive entry point, while the industry is approaching an inflection point, Jensen said.

Analyst Troy Jensen said, “Although we are bullish on all the company’s numerous growth initiatives, our upgrade is also influenced by our confidence in the company’s UAS [unmanned aerial systems] Commercial opportunity after attending one of the bigger North American UAS Conferences last week.”

The conference, known as InterDrone and held in Las Vegas, inspired confidence in the UAS industry, especially the Commercial UAS market. Jensen added that almost all the companies at the conference indicated “strong interest for UAS technology and an inflection in demand,” despite the current regulatory environment.

Jensen wrote further, “We also believe an appetite for drone exposure within the investment community could help drive the [AeroVironment] stock higher given the scarcity of publicly traded drone companies.”

In the report Piper Jaffray noted, “Once favorable regulation is in place within the United States in FY16, we believe the UAV Commercial market will see a steep inflection and can grow on a 30%+ CAGR for the next several years and become a multi-billion dollar annual industry.”

Jensen added that AeroVironment had $262.2 million in net cash on its balance sheet, which would enable it to “further pursue” the Commercial market. Moreover, the company has a robust military pipeline and should “see solid growth over the next several years.”