AeroVironment, Inc (AV). designs, develops, and produces small, unmanned aircraft and fast charge systems for electric industrial vehicle batteries. The Company offers long range tracking antenna, sensors, and missile systems. AeroVironment markets its products in the United States. Product sales generate around 85% of revenue while contract services account for roughly 15%. AV sells the majority of its UxS and services to organizations within the DoD, including the US Army, Marine Corps, Special Operations Command, Air Force, and Navy, to public safety agencies and to allied governments, or to companies that serve these customers. It sells its LMS products and services to organizations within the US DoD and allied military forces. The US Army and other US government agencies generate approximately 75% of its total sales. Non-US government is responsible for the remaining approximately 25%. AV is a credible player on key capabilities in high demand right now both in the US and internationally. These capabilities, which include loitering munitions, reconnaissance drones, and counter UAS systems, seem even more important as a result of the war in the Middle East. AeroVironment is well positioned in the defense market with extensive unmanned and counter-unmanned system offerings that have already entered service. The end market is a focus of both US and allied budgets and should see significant growth in the coming years. Our 12-month price target of $400 (CMP $177) is derived from a target 9.5X 2026E price/sales, reflecting updates to our growth and margin trajectory estimates and a mark to market vs peers. Key risks include: 1) large potential program awards not coming to fruition, 2) new entrants taking market share, 3) BlueHalo integration. Stop loss to our view is $100.
