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UAVs: Flying highForecast: AeroVironment Warms Up

Published 9 September 2008

AeroVironment reports its first quarterly earnings numbers for fiscal 2009 today; the tiny UAV company has proven its competitiveness over bigger hitters in its, well, airspace

Monrovia, California-based AeroVironment (NASDAQ: AVAV) reports its first quarterly earnings numbers for fiscal 2009 today. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read Motley Fool Rich Smith’s discussion.

What analysts say:

Buy, sell, or waffle? AeroVironment, or AV, scores four buy ratings and eight holds.

Revenue. On average, analysts predict a 1 percent rise in sales to $49.7 million.

Earnings. Profits are predicted to flatline at 0.18 per share.

What management says:
The big news out of AV this past quarter came in July, when management announced the successful landing of a SOCOM contract which could equal all of last year’s revenue. The “Puma AE” contract marks AV’s fourth consecutive small-UAV win, confirming this tiny player’s competitiveness over bigger names sharing — perhaps “crowdng” is better here — its airspace: Lockheed Martin (NYSE: LMT), Honeywell (NYSE: HON), and Raytheon (NYSE: RTN), to name a few.

What management does:
Profitwise, the company is also formidable. While gross margin continues to descend, AV seems to be “making it up on volume” in its operating margin, which leveled off and regained altitude last quarter. AV easily trumps the single-digit profit margins of much larger companies like Boeing (NYSE: BAA) and Northrop Grumman (NYSE: NOC), and more or less ties Textron (NYSE: TXT) — maker of the “Shadow” UAV — for operating profitability.

Margins

1/07

4/07

7/07

10/07

1/08

4/08

Gross

40.2%

39.4%

38.3%

37.3%

36.9%

36.4%

Operating

15.9%

16.3%

16.2%

14.9%

12.2%

13.2%

Net

9.5%

11.9%

12.1%

11.7%

10.2%

9.9%

All data courtesy of Capital IQ, a division of Standard & Poor’s. Data reflects trailing-12-month performance for the quarters ended in the named months.

Wha Rich Smith says:
As fine as AV has been flying lately — recently hitting a new 52-week high — Smith admits that he is getting a little agoraphobic over the stock’s valuation: North of a 30 P/E yesterday, analysts do not expect much more than 20 percent long-term growth. “Personally, I’ve been weighing the idea of cashing out my profits for some time, waiting for Wall Street to overreact to some bit of irrelevant fluff — as is it wont — and then buy back in, Smith writes. “But… [I] put our readers first. So before I reach for the parachute myself, let me clue you in: I think the price is high — but you know that. It could still go higher tomorrow. Wall Street has set the bar for ‘outperformance’ pretty low, predicting flat sales and earnings, both, so it won’t take a whole lot to ‘beat’ expectations this time.”

Conversely, if AV trips over this very low threshold today …