Shares in drone manufacturer AeroVironment (AVAV 1.57%) rose a remarkable 38% in the week to Friday morning, according to data provided by S&P Global Market Intelligence. There's little debate over the reason for the move; it came from its third-quarter 2024 earnings report released on Monday.
AeroVironment raises guidance, again
AeroVironment's fiscal year finishes at the end of April.The company raised revenue guidance on every single earnings call through its financial year -- a testament to the strengthening demand environment for its unmanned systems.
The chart below shows the company's full-year 2024 guidance throughout the last fiscal year.
|
Metric |
June 2023 |
September 2023 |
December 2024 |
March 2024 |
|---|---|---|---|---|
|
Revenue |
$630 million to $660 million |
$645 million to $675 million |
$685 million to $705 million |
$700 million to $710 million |
|
Non-GAAP (adjusted) earnings per share |
$2.30-$2.60 |
$2.30-$2.60 |
$2.46-$2.70 |
$2.69-$2.83 |
Data source: AeroVironment. GAAP = generally accepted accounting principles.
High growth, high valuation
Investors have demonstrated they are willing to pay up for the company's growth, and the stock now trades at 63 times the high end of its adjusted earnings guidance. As such, investors aren't paying for what the company is now, but rather what it will grow into.
It's an essentially compelling proposition because many stocks in the defense industry are facing earnings growth and margin challenges (despite improving end-market demand) as a result of ongoing cost pressures and supply chain difficulties. For example, Boeing, RTX, and Lockheed Martin disappointed investors with margins in their defense businesses.
Image source: Getty Images.
That said, defense spending is contingent on political decisions and geopolitical events, and AeroVironment's funded backlog at the end of January stood at $463 million compared to an estimated $700 million to $710 million in sales for 2024. As such, its revenue prospects will always be subject to near-term booking conditions.
