The defense market has been undergoing a major shift to take advantage of next-generation technology.
To augment current systems, the US Department of Defense has embraced remotely operated drones that can be used for surveillance or to drop payloads. It’s also made significant investments in space technology and cyber warfare.
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The Defense Department’s embrace of next-gen technology means more money has been flowing to AeroVironment (AVAV) , a leader in autonomous drones via Switchblade and Puma, with healthy exposure to areas like space and electronic warfare.
As a result, sales are growing and AeroVironment stock is surging.
AeroVironment is seeing robust demand for its drones, sending sales and its stock price surging.
AeroVironment rides DoD demand wave to record-setting quarter
Demand for drones isn’t likely to soften, given they’re faster to deploy, less expensive, and arguably more efficient than other solutions.
The combination of replacing damaged or retired drones and outfitting global militaries with additional capacity helped AeroVironment generate record fiscal year sales of $821 million, up 14% year over year. In the company’s fourth quarter, revenue surged 40% year-over-year to $275 million.
Importantly, the company secured a record $1.2 billion in bookings in the past year, providing a nice runway for future sales growth. Its funded backlog is currently $726 million, up 82% from the prior year.
Much of the success stems from Switchblade, which was responsible for 80% of the $138 million in quarterly revenue within its Loitering Munition Systems segment. LSS segment sales jumped 87% year over year last quarter.
The company received $477 million in funded contract awards for Switchblade over the past year, including the single biggest award in its 54-year history, a 5-year sole-source Army IDIQ contract worth almost $1 billion.
The company hopes new products, including the P550, Jump 20-X, and Red Dragon, will attract more awards from the US and its allies in the coming quarters.
The P550 is a Group 2 AI-driven autonomous UAS that leverages a modular open-system approach. The JUMP-20X is an uncrewed Vertical Take-Off and Landing (VTOL) aircraft designed to land on moving ships. The Red Dragon is a fully autonomous-capable one-way attack drone that can operate in GPS-denied environments.
Overall, AeroVironment estimates that existing orders and demand for new products will grow its revenue to between $1.9 billion and $2 billion in fiscal 2026.
AeroVironment restructures segments to include space
In May, AeroVironment closed on its $4.1 billion all-stock acquisition of BlueHalo. The deal helps AeroVironment expand into laser warfare, space, cyber, and unmanned underwater vehicles.
Thanks to a deal with Space Force and demand for Radio Frequency Counter-Unmanned Aerial Systems Titan and Titan-SV systems, BlueHalo racked up estimated sales of about $900 million in 2024, up from $660 million in 2021.
Following the deal’s closure, AeroVironment has decided to shift from three to two operating segments: Autonomous Systems and Space, Cyber, and Directed Energy.
The Autonomous systems business will include Switchblade loitering munitions and Red Dragon, counter-UAS solutions, ground and maritime robotics, and MacCready Works, its R&D engine.
The Space, Cyber & Directed Energy will include solutions targeting space, laser weapons, cyber solutions, and mission services.
Strong sales, solid guidance, and a restructuring to emphasize its opportunity in space warfare have caused AeroVironment’s stock price to surge 25% on June 25.
Todd Campbell owns shares of AeroVironment.
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