Why AeroVironment Stock Sank This Week
Key Points
AeroVironment achieved sales growth of 151% in the second quarter, powered by its recent acquisition of BlueHalo.
However, its profits fell short of expectations, so the stock got walloped.
From a longer-term perspective, though, the new-look AeroVironment looks stronger than ever.
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Shares of up-and-coming unmanned defense systems provider, AeroVironment (NASDAQ: AVAV), are down 10% this week as of market close on Thursday.
The next-gen defense contractor reported second-quarter earnings on Tuesday that exceeded Wall Street's sales expectations but missed its adjusted net income expectations by a wide margin.
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AeroVironment's organic sales grew by 22% during Q2, but increased by 151% when including the company's recent acquisition of defense technology solutions provider BlueHalo.
Although the stock sold off slightly after missing analysts' expectations, I don't think investors should worry, as this appears to be a natural consequence of integrating such a large acquisition. Furthermore, AeroVironment was trading at 80 times forward earnings before this week's drop, so its stock was priced for perfection, and the company came up just shy.
The new-look AeroVironment
AeroVironment's $4.1 billion acquisition of BlueHalo appears to be a transformational event for the company. Not only does the deal bring in BlueHalo's complementary expertise in space technology, electronic warfare, and counter-unmanned aircraft systems, but it also enables the two companies to merge and create AV_Halo.
AV_Halo is a unified software stack that builds a mission-ready platform for fully integrating battlefield management.
Just half a year after closing this acquisition, AV_Halo has already been awarded a contract with the U.S. Army for its Human-Machine Integrated Formation program.
Image source: Getty Images.
Speaking about this win, Chief Executive Officer Wahid Nawabi explained, "AV is going to be the lead software and system integrator for robotic systems on the edge of the battlefield. This award also validates the strength of our approach to software solutions, common controllers, and user interfaces, and underscores the Army's confidence in AV's ability to deliver mission-critical solutions."
This is a major development for the company as it shows the company is well on its way to becoming a leading "unified platform for the future battlesphere."
As promising as I think AeroVironment's future is, its stock still trades at 72 times forward earnings, even after this week's drop. Interested investors like myself should add slowly over time.
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Josh Kohn-Lindquist has positions in AeroVironment. The Motley Fool has positions in and recommends AeroVironment. The Motley Fool has a disclosure policy.
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