Why AeroVironment Shares Are Up Today

Key Points

• AeroVironment is maturing as a defense contractor and is increasingly seeking sales to allies to augment domestic growth.

• A change in U.S. policy designed to ease export restrictions on drones could help power revenue higher.

• 10 stocks we like better than AeroVironment ›

The U.S. government is modifying its export policy on drones, creating new opportunities for the companies that sell them.

Shares of AeroVironment (NASDAQ: AVAV), one of the companies most likely to benefit from the change, were up 5% as of 3:30 p.m. ET as a result.

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Selling to a wider audience

AeroVironment is a defense contractor that has jumped on a lot of radars in the past few years. The company's small drones have been a key part of United States military aid packages sent to Ukraine, and its drones have proven their usefulness on the battlefield.

Late Monday, the Department of State said it would review requests to export unmanned aerial systems (UAS) similar to how it reviews requests to export piloted aircraft not as missile systems. The move, according to the official release, means "the Department will be able to more efficiently adjudicate foreign defense sales requests, opening new markets for the U.S. UAS industry."

While the move does not provide any immediate revenue boost for AeroVironment, it could help answer investor questions about whether the company will be able to sustain revenue momentum even when demand from Ukraine falls.

Is AeroVironment a buy?

For AeroVironment to work out for long-term investors, the company is going to have to grow its product portfolio. There is good news on that front as well.

Last week, the company confirmed its BlueHalo subsidiary had been awarded a $499 million, eight-year contract from the Air Force to continue development of systems that can survive electromagnetic jamming. AeroVironment bought BlueHalo earlier this year as a new avenue of growth, and the contract suggests that the company is having success turning that potential into revenue.

There's more work to be done, and with AeroVironment trading at more than 140 times earnings, there is a lot of potential already priced into the stock. But for investors looking for a rare long-term growth stock in the defense sector, AeroVironment is an intriguing choice.

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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AeroVironment. The Motley Fool has a disclosure policy.