Stifel Downgrades AeroVironment, But Continues To Have 'Positive Bias' On Stock

A Stifel analyst is “torn” over drone maker AeroVironment, Inc. AVAV.

The Analyst

Stifel's Joseph DeNardi downgraded AeroVironment from Buy to Hold and raised the price target from $65 to $70. 

The Thesis

AeroVironment has the potential for significantly higher returns for investors, DeNardi said in the downgrade note, adding that he  expects to maintain higher revenue and EPS estimates than the Wall Street consensus over the next few years.

“[We] continue to maintain a positive bias on the stock,” the analyst said. 

The equity's valuation — which climbed 16.3 percent from Monday to Wednesday’s close — seems full, he said. DeNardi noted that the company’s recent investor day did not provide any meaningful reasons to raise estimates.

AeroVironment’s growth prospects remain promising, with Tactical Missile Systems, High Altitude Pseudo Satellite and Switchblade leading the way, DeNardi said. The benefits of the Switchblade funding will not be fully seen until fiscal 2020, but should provide a strong tailwind, the analyst said.

DeNardi was also surprised by the amount of time AeroVironment spent discussing HAPS during the investor day, suggesting they are increasingly bullish on the segment in the near-to-mid-term.

If the company is successful on executing its growth strategy, DeNardi said it could become an attractive acquisition for other defense names including L3 Technologies Inc LLL, General Dynamics Corporation GD and Raytheon Company RTN.

Price Action

AeroVironment shares were sliding 3.57 percent to $64.25 at the time of publication Thursday morning.

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An AeroVironment Pathfinder Plus solar aircraft. Photo by Nick Galante/NASA.