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KeyBanc analyst Michael Leshock initiated AeroVironment stock with a buy rating this morning.
Leshock sees AV stock as attractively priced and well-positioned to profit from rising space and military spending.
Military drones manufacturer AeroVironment (NASDAQ: AVAV) stock gained 4% through 1:30 p.m. ET Friday.
You can thank KeyBanc analyst Michael Leshock for that. This morning, Leshock initiated coverage on AeroVironment with an overweight rating and a $285 price target.
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Although AeroVironment also makes some drones for civilian use, Leshock likes the company most for its "strong leverage to defense tech and space growth," as StreetInsider.com reports today.
AV boasts a differentiated product portfolio, which began with military drones but is now expanding into interceptor drones to shoot down other drones, industry-leading profit margins, and has a competitive moat from in the form of robust defense backlog and new business from its BlueHalo acquisition, which AV bought for $4.1 billion back in 2024 -- a price I said was nice back when the acquisition was announced, being at a much lower price-to-sales ratio than AeroVironment's own. It also gave AV stock exposure to the space industry, an area of robust growth in military spending.
From a valuation perspective, Leshock notes that AV stock is trading for an enterprise value of about 28 times earnings before interest, taxes, depreciation, and amortization (EBITDA), which is right in the middle of its historical range -- and recommends buying the stock as it climbs back higher toward a 35-times multiple.
I'm not so sure he's right about that, though.
"EBITDA" or no EBITDA, I can't help noticing that AV stock today is unprofitable when earnings are calculated according to generally accepted accounting principles (GAAP), and burned about $240 million in negative free cash flow over the past 12 months. Indeed, AV's been FCF-negative for close to five straight years now.
Until that changes, I cannot recommend buying AeroVironment stock.
Ktos 4.5
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AeroVironment. The Motley Fool has a disclosure policy.
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