AeroVironment Secures Major U.S. Army Contract

Investing.com — AeroVironment (NASDAQ:AVAV) Inc. saw its shares surge almost 9% Wednesday after securing a nearly $1 billion contract from the U.S. Army, leading Baird analysts to upgrade the stock.

The contract, valued at $990 million, aims to provide “an organic, stand-off capability to dismounted infantry formations,” specifically the SwitchBlade drone, which enables dismounted infantry units to destroy tanks, light armored vehicles, hardened targets, defilade, and personnel targets.

Baird’s note explains that the contract, extending through August 2029, ensures significant visibility for AeroVironment’s revenue stream over the next five years.

In response, analysts upgraded AeroVironment to Outperform from Neutral, citing the record contract as a key driver for future growth. They emphasized that this award “locks in visibility” for the company’s loitering munition systems (LMS) segment through FY29, alleviating investor concerns about potential revenue shortfalls beyond FY25.

Analysts project substantial growth for AeroVironment’s SwitchBlade product, forecasting LMS revenues to rise significantly over the next few years:
– FY25: $405 million
– FY26: $550 million
– FY27: $650 million
This sharp increase highlights the contract’s importance. Moreover, they raised AeroVironment’s price target to $220, up from $161, reflecting newfound confidence in the company’s growth trajectory.

The upgrade also considers the expected expansion in production capacity, as the company plans to boost its annual production output of the SwitchBlade to $1 billion by FY27 to meet growing demand.

Baird concludes that AeroVironment’s premium valuation is now justified, stating the company is “still cheaper than peak valuation in early 2024.”