When Motley Fool Rule Breakers recommendation AeroVironment (NASDAQ:AVAV) reported earnings last night, I was worried.

Why? Because AeroVironment didn't report "earnings" at all. Rather, this tiny manufacturer of robotic airplanes reported a loss. And not just any loss, but its first loss ever (as a public company). It was a situation fraught with peril for shareholders like myself. So thanks go out to Wall Street analyst Janney Montgomery Scott today for ... downgrading the stock.

Huh?
You read that right. After reviewing the news -- a 29% decline in sales relative to last year, leading to a massive $0.29-per-share "earnings miss" -- Janney concluded the best course of action is "stepping aside to see what happens with the Company's rollout of its DDL product." Janney downgraded the stock to neutral and dropped its target price as well.

But here's the good news: Janney only dropped AeroVironment to $29, or 5% below where the stock traded before earnings were announced. The high "floor" price thus established is preventing the company's shares from falling anywhere near as much as you might expect.

Basically, Janney is calling AeroVironment's stock fairly valued, given the uncertainty of its outlook. I'd say that's a reasonable position to take because the unmanned aerial vehicles sky has become awfully crowded lately. General Atomics, Boeing (NYSE:BA), Raytheon (NYSE:RTN), and a likely entry from Lockheed Martin (NYSE:LMT) are all vying to build the Air Force's next-generation "MQ-X" aircraft. Most of­ the above, plus Textron (NYSE:TXT) and new rival General Dynamics (NYSE:GD), are fighting over the Navy's STUAS/Tier II contract.

On the other hand, the big boys continue to seek big bucks from a Pentagon enamored of big-plane UAVs, whereas AeroVironment still dominates the small-UAV segment.

Running out of hands
On the third hand, AeroVironment itself isn't at all fazed by its loss. Why not? Management ascribes it to its Pentagon buyers deferring small UAV purchases in anticipation of upgrades due later this year. The company says this is all according to plan, assures us that sales that didn't happen in the fiscal first quarter will still happen later this year (as it rolls out its digital datalink UAVs), and reiterates its promise to grow revenues "18% to 22%" this year, with operating margins of "12% to 14%."

Valuation
Final point: AeroVironment may have reported a "loss" for the latest quarter, but cash profits actually grew. Free cash flow for the last 12 months comes to $34 million, giving this stock a price-to-free cash flow ratio of less than 18. To me, this suggests that if management can keep its word and hit at least the low end of guidance, this bird should fly again.

Everything about investing in UAVs:

Fool contributor Rich Smith owns shares of AeroVironment and Boeing. AeroVironment is a Motley Fool Rule Breakers selection. General Dynamics is an Inside Value recommendation. The Motley Fool's disclosure policy folds easily into the original UAV -- a paper airplane.