Shares of AeroVironment (AVAV +4.59%) were trading sharply higher this week, jumping as much as 17.2%, according to data supplied by S&P Global Market Intelligence. After the market close on Thursday, the stock was still up 15.5%.
The catalysts that sent the drone maker higher were reports that the company's cutting-edge counter-drone technology was deployed at a U.S. airport earlier this week, sparking some attention from Wall Street.
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High-profile deployment
El Paso International Airport made headlines last week when the Federal Aviation Administration (FAA) abruptly closed the airspace around the highly traveled airport. Officials cited a drone incursion from neighboring Mexico.
Later, conflicting reports surfaced suggesting that the U.S. military or U.S. Customs and Border Protection had deployed counter-drone lasers, prompting the shutdown. The technology in question was AeroVironment's LOCUST counter-drone direct-energy laser weapons system.
NASDAQ: AVAV
Key Data Points
In the wake of this development, JPMorgan Chase analyst Seth Seifman initiated coverage of AeroVironment stock with an overweight (buy) rating and a $320 price target. At the time of the analyst's call on Tuesday, that represented 31% upside potential, but the stock has since closed the gap.
Seifman noted that AeroVironment operates in high-growth areas of defense, including drones, counter-drone systems, and space. He went on to cite rising defense budgets and geopolitical risks to justify the company's premium valuation.
The analyst has a point. At 173 times earnings and 82 times forward earnings, AeroVironment stock certainly fetches a lofty valuation. As a leader in next-generation warfighting technology, the company is well-positioned to prosper, but investors should exercise caution with this highflier.
