An AeroVironment drone. Most of the company’s business is in defense.
Patrick T. Fallon/Bloomberg
Stock in the defense supplier AeroVironment is jumping Wednesday as President Joe Biden said the U.S. will send drones to help Ukraine defend against the Russian invasion.
“The American people are answering President Zelensky’s call for more help, more weapons for Ukraine to defend itself,” said Biden on Wednesday. “It includes 800 antiaircraft systems…9,000 anti-armor systems…this will include drones, which demonstrates our commitment to sending our most cutting-edge systems.”
The total incremental support announced this week comes to $1 billion.
AeroVironment (ticker: AVAV) supplies drones to the U.S. military. Its Switchblade 600 drone, for instance, “represents the next generation of extended-range loitering missiles,” according to the company’s website. A Switchblade is like a flying bomb that can be launched and then aimed at an armored vehicle the operator identifies.
AeroVironment shares closed up 9.8%, at $81.47, on Wednesday. The S&P 500 and Dow Jones Industrial Average closed up 2.2% and 1.6%, respectively.
The impact is large for AeroVironment because it is a small-capitalization stock. Wednesday’s move added roughly $150 million in market value to the company.
“AeroVironment is not in a position to comment on the specifics of the U.S. government’s military aid for Ukraine or the transfer of equipment between governments,” a spokeswoman said.
William Blair analyst Louie DiPalma wrote Wednesday that 100 Swtichblade systems could be shipped to Ukraine. “As Switchblade 300 systems cost approximately $70,000 per aircraft….this transfer implies merely $7 million of Switchblades to be delivered,” he noted. The revenue bump might disappoint investors, but the analyst still believes the Ukraine shipment is a milestone for the company.
He rates shares the equivalent of Buy. DiPlama doesn’t have a price target. A Buy rating at William Blair, essentially, means he expects it to outperform the market.
For calendar year 2022, Wall Street projects the company will generate about $488 million in sales, along with $1.56 in per-share earnings. AeroVironment stock is trading at about 52 times the 2022 EPS number.
Small-cap stocks sometimes trade at higher multiples of earnings than larger-cap stocks because they can be taken over. Buyouts of relatively expensive stocks can make sense because larger firms can generate synergies via moves such as cutting costs and expanding distribution.
Stocks in the Russell 2000 Small Capitalization Index trade for almost 23 times estimated 2022 earnings, while shares in the Russell 1000 Large Capitalization Index trade for about 19 times.
AeroVironment’s price/earnings ratio has risen as the stock has moved higher. Shares are up more than 31% year to date. Many defense stocks have moved higher because of the Russian invasion of Ukraine. Lockheed Martin (LMT) shares, for instance, are up about 19% year to date.
Year-to-date gains have put AeroVironment stock above analysts’ price targets. Eight analysts cover the company. Four rate shares at Buy and four rate shares at Hold. The average price target is about $76 a share, just below where the stock was trading late Wednesday.
Write to Al Root at [email protected]
