Investor enthusiasm for AeroVironment Inc.’s military drone business and better-than-expected quarterly financial results sent its stock price soaring last week.
The Monrovia-based company’s share price rose more than 18 percent to close at $46.52 on Aug. 30, the day after AeroVironment released its quarterly report. That was an increase of 20.6 percent over the previous week and 56.2 percent from a year earlier.
Cutbacks in research and development spending by the company helped narrow losses, while increased sales of its explosive kamikaze drone, called the Switchblade, as well as of older surveillance drones to international customers helped increase sales for the quarter ended July 29.
Investors see the company, with a market capitalization of about $1.15 billion, benefiting from an increased appetite for drone technology among militaries worldwide, said Ken Herbert, managing director with Canaccord Genuity Inc. in San Francisco.
“People are very bullish about defense over the next couple of years,” he said. “And, there’s only a handful of pure-play defense companies like AeroVironment.”
The company lost $4.44 million in the quarter ended July compared with an analyst consensus of $7.98 million in losses. Revenue grew 20.8 percent to $43.8 million compared with the quarter a year earlier.
AeroVironment’s revenue growth and recent cost reductions are a result of the company reaping benefits from R&D investments made several years ago, while simultaneously ramping down expenditures, said Steve Gitlin, vice president of corporate strategy. R&D efforts were primarily related to development of its Switchblade drone and commercial surveying drone Quantix.
“Historically, we’ve tended to invest between 8 and 10 percent of our revenue in internal research and development,” Gitlin said. “In fiscal ’15, we boosted that to 18 percent; in fiscal ’16, we invested 16 percent; in fiscal ’17, it was 12 percent.”
Demand for the Switchblade has increased in parallel with U.S. combat operations in Iraq and Afghanistan. The model’s sales have grown from $6 million in fiscal year 2011 to more than $75 million in revenue in fiscal 2017, he added.
The firm’s annual revenue has been relatively flat over the past three years, however. The company generated $265 million in 2017, $264 million in 2016 and $259 million in 2015, according to a filing with the Securities and Exchange Commission.
AeroVironment sells its drones in more than 40 countries. The company generated 36 percent of revenue from international sales last year, rising from 9 percent in 2015.
“When you look at the threat environment internationally, you are seeing increased interest in Japan, the Middle East, Australia and Western Europe,” Canaccord’s Herbert said.
– Garrett Reim
