Pandemic Accounted for in AeroVironment Plan

AeroVironment Inc. is on track to meet fiscal 2021 projections on its finances, company executives said in a conference call with analysts.On the Sept. 9 call to discuss fiscal 2021 first quarter earning, Chief Executive Wahid Nawabi said the Simi Valley unmanned aircraft manufacturer had included assumptions about the coronavirus pandemic into its annual plan. That explains why the second half of the year is back-ended to bring in about 60 percent of its revenue. “While this is a very fluid and unprecedented situation, we are prepared for the likelihood that the COVID-19 pandemic will persist into next calendar year and are well positioned to mitigate its impact on our business,” Nawabi said. The projections for the year include revenue guidance between $390 million and $410 million and an adjusted earnings per share between $1.74 and $1.94.“We still expect first-half revenue to account for approximately 40 percent to the midpoint of our revenue guidance range,” Nawabi said. “We also expect first-half earnings per diluted share to represent about 35 percent of the midpoint of our diluted EPS guidance range.”On Sept. 9, AeroVironment reported net income of $10.1 million (42 cents a share) for the quarter ending Aug. 1, compared to net income of $17.1 million (71 cents) in the same period a year earlier. Revenue increased by 1 percent to $87.5 million. The company attributed the slight boost in revenue to an increase in service revenue of $8 million, partially offset by a decrease in product revenue of $7.5 million. Product revenue comes from the small drone segment; the tactical missile systems segment; and the company’s HAPSMobile joint venture to develop a large aircraft designed for continuous, extended missions of up to months without landing; and an “other” segment. Shares of AeroVironment have lost less than a percent since the beginning of the year. At market close on Sept. 23, it was priced at $61.21. Analysts who follow AeroVironment gave mixed reviews of the fiscal first quarter results. Small missilesIn a research note, Louis DiPalma, an analyst with William Blair & Co. in Chicago, reaffirmed a “market perform,” or “hold,” rating on AeroVironment shares. He noted that the shares were trading down due to flat growth and a decline in the company’s backlog. “While we believe that AeroVironment deserves a premium multiple due to its superior growth profile … and numerous catalysts, we believe there is the potential that increased competition will cause its valuation premium to narrow over the next 12 months,” DiPalma wrote in the note. Peter Arment, senior research analyst with R.W. Baird & Co. Inc. in Milwaukee, wrote in his research note that he was not convinced to move AeroVironment off a neutral rating. The Switchblade drone, categorized as a missile because of its warhead, is a key to growth at the company, Arment wrote, adding that a larger variant of the miniature missile system would allow AeroVironment to expand into a billion-dollar market. “While Switchblade and international (sales) will aid growth in the out years, the major LMAMS (Lethal Miniature Aerial Missile System)  award being out of the way leaves few near term catalysts to move us off the sidelines,” Arment put in the note. In April, the company received a $76 million contract for one year’s worth of purchases by the U.S. Army of the Switchblade system. DiPalma noted in his research report that AeroVironment management disclosed that it received $32 million of the contract in the fourth quarter of fiscal 2020 and an additional $2 million during the first quarter. “Management expects to recognize $42 million in Switchblade LMAMS contract revenue for the rest of its fiscal 2021,” DiPalma wrote. Arment expects the contract to grow to $146 million between the current fiscal year and the 2023 fiscal year. “We expect the Switchblade franchise, which is under AeroVironment’s Tactical Missile Systems business, to be the primary growth driver as progress is made on a larger variant,” Arment said in his note. During the conference call, Nawabi said the larger version of the Switchblade represents a game-changing system that can disrupt the larger segment of the missile market, currently dominated by the Hellfire made by Lockheed Martin Corp.; Javelin, made by a joint venture of Raytheon Technologies Corp. and Lockheed; and TOW, also developed by Raytheon. “These legacy missiles accounted for more than $1 billion enacted (Pentagon) procurement funding in government fiscal year 2020,” Nawabi said.