Defense Stock Soars on ‘Rare Move’ From the U.S. Army
Rare move, unmanned lethal vehicles.
Defense Stock Soars on ‘Rare Move’ From the U.S. Army
By Al Root
Last Updated: Sept. 23, 2024 at 4:42 p.m. ET
First Published: Sept. 23, 2024 at 12:01 p.m. ET
Referenced Symbols
A Switchblade 600 munition launch PHOTO: AEROVIRONMENT
A “rare move” from the U.S. Army means it’s “game on” for popular shares of this U.S. defense contractor.
AeroVironment
is the contractor. Its shares closed up 11.9% at $204.50 in Monday trading while the S&P 500
added 0.2% and the Dow Jones Industrial Average
closed up 0.2%. Gains leave AeroVironment
shares up about 62% year to date.
New business has helped shares. The company’s stock soared almost 15% in the two days following a late August award from the U.S. Army that awarded it a $990 million five-year contract for Switchblade, AeroVironment’s “loitering munitions” system. It is essentially a launchable, guided bomb that can stay in the air for a while as an operator finds a target.
The award is big considering AeroVironment’s size. The contract works out to roughly $50 million per quarter. Wall Street expects AeroVironment to report sales of about $177 million for the quarter that ends in October, according to FactSet.
After the award, however, in mid-September, AeroVironment disclosed that the Army award was being protested by other suppliers. Protests aren’t all that unusual in the defense business, but the Army issued a stop-work order while the protest was being adjudicated. The protest and work order sent AeroVironment shares down almost 10% on Sept. 16.
Now, the Army has lifted the stop work order. That’s “a rare move,” wrote William Blair analyst Louie DiPalma in a Monday report. “The reversal of the stop order is a positive sign as it exemplifies that the Army views the Switchblade-600 as mission critical for its new LASSO program.”
LASSO is short for Low Altitude Stalking and Strike Ordnance and is part of the Lethal Unmanned Systems initiative.
DiPalma rates shares the equivalent of Buy and doesn’t have a price target for shares. A Buy rating at Blair essentially means the analysts expect the stock to outperform the market.
Jefferies analyst Greg Konrad rates AeroVironment stock at Buy and has a $230 price target. Konrade noted recently that the protest really doesn’t change demand for Switchblade. It most likely shifted around when munitions would be shipped. Now it’s “game on,” added Konrad in a Monday report.
Overall, six out of seven, or 86%, of analysts covering AeroVironment stock have Buy ratings. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target for AeroVironment stock is about $227, implying a gain of about 11% from Monday’s close.
Write to Al Root at allen.root@dowjones.com
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https://www.marketwatch.com/articles/defense-stock-army-a801a3db?mod=mw_latestnews