AeroVironment, Inc. (AVAV) Startles Wall Street with Surprisingly Good FQ2:18 Turnout

AVAV's UAS segment stole the show as Canaccord's Kenneth Herbert believes this segment offered a great deal of the upside seen in the second fiscal quarter.


AeroVironment, Inc. (NASDAQ:AVAV) shares are flying 32% after the military drone maker has lit up Wall Street with positive buzz from its unanticipatedly robust second fiscal quarter showcase. Meaningfully outclassing Street-wide expectations, one voice anticipated this stock would react advantageously amid the latest short pressure.

Recognizing promising standing for a company stepping right into international growth, even a sidelined analyst is now out boosting his expectations. However, with a volatile whirlwind at play and steep stock value, there is room for downside ahead all the same.

Canaccord analyst Kenneth Herbert gives kudos to the drone maker’s Unmanned Aircraft Systems (UAS) segment for the beat, spotting outperformance, considering the segment already saw a 57% rise in the second fiscal quarter. Now it appears “very conservative” for the AVAV team to have maintained its financial guide for fiscal 2018, as far as Herbert sees it.

On back of the print, the analyst maintains a Hold rating while boosting the price target from $48 to $50, which implies a 12% downside from where the stock is currently trading. (To watch Herbert’s track record, click here)

For the second fiscal quarter, AeroVironment yielded a welcome profit, posting $0.29 in EPS, which climbed far above the analyst’s forecast of ($0.02) as well as consensus of ($0.06). Meanwhile, revenues likewise shot far past the Street’s expectations, bringing to the drone maker’s table $74 million, marking a 47% growth for the second fiscal quarter. Herbert notes, “Similar to the Q1/18 results, margins, especially in the UAS segment, were much stronger than anticipated, providing much of the upside.” Total company gross margins grew from 35% to a whopping 42% in the latest quarter.

“The company maintained its opinion that the TOGA and FCS programs combined can represent $100M in revs over several years. While timing is difficult to predict, the company is well positioned for these opportunities, and we believe a portion of these revenues will fall into 2018, with a potential step-up in 2019-20. The company also indicated that it is seeing substantial growth in its legacy Puma offering, as well as with its international sales and its TMS (Blackwing) offering. We believe short-cycle requirements are a strong driver, and international demand should remain strong into CY18,” writes the analyst.

Overall, “We do not believe investors were too worried about the recent short report, but the strong Q2/18 results will help with improved sentiment on the stock. We continue to see potential volatility in the results, and the high valuation keep us HOLD on the stock,” Herbert surmises, anticipating downside potential even as he gains more positive sentiment on the industrial player.

TipRanks analytics reveal an analyst consensus that sides with Herbert on his cautious perspective for the drone maker, as all 3 analysts polled in the last 3 months are sidelined on AVAV stock. When considering whether or not the stock is overvalued, keep in mind the 12-month average price target stands at $40.00, marking a nearly 30% downside from current levels.