AeroVironment (AVAV +4.57%) investors started off the morning in high spirits as the drone maker was one of several defense stocks to rally in response to the attack on Iran over the weekend.
The stock was up as much as 20.1% shortly after the opening bell rang, but then gave up those gains and fell into negative territory after Space News reported that Aerovironment (AV) could lose its approximately $1.4 billion contract with the Space Force as the Pentagon is reopening the program for bidding.
Raymond James triple-downgraded Aerovironment on the news, lowering its rating from strong buy to underperform.
As a result, AeroVironment stock was down 19.5% as of 2:00 p.m. ET on the news.
Image source: Getty Images.
Is AeroVironment about to lose out on $1.4 billion?
According to Space News, as part of the Pentagon's aim to break away from cost-plus contracting, it's reopening the Satellite Communications Augmentation Resource (SCAR) program to build mobile ground stations used to track and operate spacecraft.
The $1.4 billion contract had been awarded to AeroVironment subsidiary BlueHalo, which it acquired last year, but the Pentagon is reopening it in order to diversify its suppliers and possibly lower costs.
The BlueHalo unit in question, named BADGER, had hit a roadblock in January when the U.S. government issued a stop-work order for delivery of the units.
AeroVironment described the process as a renegotiation.
NASDAQ: AVAV
Key Data Points
What it means for AeroVironment
The BADGER deal is a huge contract for AeroVironment, and Raymond James called it its largest program of record in the downgrade note. The SCAR deal makes up close to half of AV's total $2.8 billion backlog.
It's unclear how the SCAR reopening will work out for AeroVironment, and it could retain a significant portion of the contract in the end. However, the news introduces a lot of uncertainty for investors, and it's clearly a setback for the company.
Given the size of the contract, it's not surprising to see the drone stock down double-digits today.
