Why AeroVironment Stock Keeps Going Up

Key Points

• Wall Street analysts lined up to raise price targets on AeroVironment stock this week.

• This morning, the U.S. Air Force awarded the company a $499 million, 10-year research contract.

• 10 stocks we like better than AeroVironment ›

For the third day in a row, AeroVironment (NASDAQ: AVAV) stock few higher on Wednesday, rising 7.9% through 12:20 p.m. ET -- putting the builder of military drones up more than 12% so far this week.

You can thank Wall Street for that... and also the U.S. Air Force.

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Everybody loves AeroVironment

Three separate Wall Street analysts raised their price targets on AeroVironment stock this week, reports The Fly, predicting AV stock will hit $348, $350, or even $365 within the next 12 months. Jefferies, the most optimistic of the analysts, calls AV "one of the winners" of "a once-in-a-generational shift" as Western nations rush to invest in drone technology.

And it seems AV stock may be about more than just drones.

This morning, AV announced it has won a 10-year, $499 million U.S. Air Force Research Laboratory contract for work on High-Performance Electromagnetic Spectrum Survivable Materials Advancement (HELMSSMAN). According to the company's press release, the HELMSSMAN project aims at "guarding warfighters against exposure to harmful electromagnetic radiation."

Two separate task orders awarded pursuant to the overall contract involve research into "Advanced Development of Vision Protection Materials" (which sounds like protection from lasers), and also "Advanced Development of Materials for EMS Resilience" -- which sounds more like protection of equipment from electronic jamming, more in line with AV's roots as a drones company.

Is AeroVironment stock a buy?

AeroVironment expanding into new but related markets sounds like good news for the stock. If there's one thing that gives me pause, though, it's that analyst forecasts for the stock price appear to be hitting a ceiling.

Priced at $341 already today, the $365 price target for example implies only 7% upside in this already overvalued stock. The $348 price target implies upside of only... 2%! If these are the best returns investors can expect out of AV, I honestly can't fathom why Wall Street keeps telling investors to buy AV stock.

It only looks like a sell to me.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AeroVironment and Jefferies Financial Group. The Motley Fool has a disclosure policy.