Why AeroVironment Stock Popped Today
Key Points
The Wall Street Journal reports the U.S. Pentagon may soon subsidize U.S. drone companies.
Several companies were named as likely winners.
AeroVironment was not one of them.
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AeroVironment (NASDAQ: AVAV) stock soared 16% through 10:25 a.m. ET Thursday after The Wall Street Journal reported the Trump Administration may make financial investments in U.S. drone manufacturers.
The proposed subsidies would promote development of low-cost disposable attack drones commonly referred to as first-person view or "FPV," a drone type AeroVironment pioneered with its Switchblade loitering munition more than a decade ago.
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And yet, at reported prices approaching $100,000, AV's drones are a lot more expensive than the drones the Pentagon is looking for.
Image source: AeroVironment.
What we know about the new drone plan
The Trump administration is pursuing deals with "a group of drone companies," reports WSJ. Privately held Performance Drone Works and Neros Technologies, both winners of Drone Dominance Program contracts, are believed to be two companies in the running, as is publicly traded Unusual Machines (NYSEMKT: UMAC).
AeroVironment is not.
That sounds like bad news for AeroVironment. It may be bad news. But negotiations are ongoing, and the Pentagon -- which will manage the investments -- is "continuing to vet the companies." Potentially, that could mean not all the named companies will get funding... or that AeroVironment won't.
What's next for AeroVironment investors?
If AeroVironment wins government support, what form might that take?
Prior investments by the Trump Administration have been styled as promoting industries critical to national security, while also creating the potential for the government to profit if the investments pay off. For example, when the Department of Energy awarded a 10-year supply contract to rare-earth element miner MP Materials (NYSE: MP) last year, it also demanded stock in MP.
Any deal with AeroVironment could take a similar form, comprise loans conditioned on hitting milestones, or come as no-strings-attached grants. For the time being, we simply don't know how this will play out -- but stay tuned.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AeroVironment. The Motley Fool recommends MP Materials. The Motley Fool has a disclosure policy.
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