AeroVironment, Inc.: Initiation of Research Coverage

Thursday, January 24, 2019

William Blair & Company initiated research coverage of AeroVironment, Inc. (AVAV $73.60), a leading provider of small unmanned aircraft systems (UASs) for military customers.

Analyst Louie DiPalma estimated the company would generate $1.48 in earnings per share in fiscal 2019 and $1.72 in fiscal 2020 (the company's fiscal year ends in April).

"AeroVironment was one of the early pioneers of the small form factor UAS," DiPalma said. "AeroVironment's Raven, introduced in 2004, is the DoD's most popular UAS by unit volume. We estimate that AeroVironment has greater than 85% unit market share of the DoD's UAS inventory, but about 2% of total dollar UAS market share. AeroVironment is poised to benefit from the DoD's desire to build out its small drone capabilities with new programs such as the Soldier Borne Sensor and Short Range Reconnaissance. Annual growth for the U.S. GFY19 drone budget allocation accelerated to 20%, with a 14.7% five-year CAGR, more than triple the five-year CAGR for the overall U.S. DoD base budget of 4.1%. Including investments by U.S. allies, we estimate that roughly $18 billion will be spent in the government's fiscal year 2019 on military unmanned aerial system procurement, operations, and research and development."

DiPalma continued, "AeroVironment, with its portable drone Switchblade missile system, is the sole supplier to the Army and Marine Corps Lethal Miniature Aerial Missile System program. We estimate that AeroVironment's Switchblade has a $191 million annual addressable revenue opportunity within the DoD. While AeroVironment is able to ship its small UASs such as Raven to U.S. allies, it is restricted from selling its highly popular Switchblade to international customers. The U.S. government in April 2018 began the process of easing restrictions on armed drone sales to allies. We estimate that opening the Switchblade market would double the opportunity to $380 million."

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