Stifel Cites Growth Opportunities In AeroVironment Upgrade

AeroVironment, Inc. AVAV, a manufacturer of unmanned aerial vehicles for surveillance and reconnaissance for both military and commercial clients, boasts a "pipeline of opportunities" the likes of which haven't been seen in 10 years of coverage of the company, according to Stifel.

The Analyst

Stifel's Joseph DeNardi upgraded AeroVironment's stock rating from Hold to Buy with a price target lifted from $45 to $65.

The Thesis

AeroVironment's Switchblade is an automated sensor-to-shooter drone that accounted for 50 percent of $75 million in revenue within the Tactical Missile Systems business, DeNardi said in the upgrade note. Encouragingly, Switchblade alone could generate $300 million to $400 million in annual sales over the coming years based on the assumption the U.S. Army builds out an inventory of drones and comparable missile systems.

AeroVironment generated around $85 million in sales from American allies in fiscal 2017, the analyst said. The company said it has 40 foreign customers, which implies a low average revenue per customer, but a recent sale of the $45-million Puma UAV to one foreign customer implies a "deeper customer penetration" is ongoing, DeNardi said. 

AeroVironment investors are buying a "call option" from potential revenue upside in two new product lines, Quantix and HAPS, for the precision agriculture drone market, the analyst said. 

Price Action

Shares of AeroVironment were trading higher by nearly 2 percent early Wednesday morning.

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