AeroVironment (AVAV): A Drone Defense Play Poised to Soar Ahead of Critical Earnings

As geopolitical tensions and modern warfare evolve, the demand for cutting-edge defense technologies has never been higher. Among the companies capitalizing on this trend is AeroVironment (NASDAQ: AVAV), a leader in uncrewed systems and loitering munitions. With its fiscal 2025 results set to be unveiled next week, investors are primed for a catalyst that could propel the stock to new highs. Here's why AVAV is worth buying ahead of its June 24 earnings call.

A Fiscal 2025 Masterclass in Defense Innovation

AVAV's Q4 fiscal 2025 results, to be reported next week, are already shaping up as a milestone. According to preliminary data, revenue for the quarter is expected to hit $275 million, a 40% year-over-year surge, driven by record bookings in its loitering munitions division. For the full fiscal year, revenue could surpass $820 million, a 14% increase from 2024. These numbers underscore the company's dominance in critical markets:

• Loitering Munitions Systems (LMS): Sales jumped 87% year-over-year, fueled by demand for its Switchblade missile system, a portable weapon system used in conflicts like Ukraine.
• BlueHalo Acquisition: Completed in May, this adds $180 million in annualized revenue and expands AVAV's capabilities in counter-drone systems, cyber warfare, and directed energy technologies.

The company's funded backlog—a metric reflecting future revenue visibility—has nearly doubled to $726 million, the highest in its history. This is no small feat; it suggests a pipeline of orders that could sustain growth for years.

Why Analysts Are Bullish: Stifel's $240 Target and Beyond

Analysts are taking notice. On June 24, Stifel initiated coverage with a “Buy” rating and a $240 price target, implying 25% upside from current levels. Analyst Jonathan Siegmann highlighted AVAV's “strategic positioning in emerging defense tech”, emphasizing the BlueHalo acquisition and its role in autonomous systems, space, and cyber defense.

The broader consensus is equally positive:
- Average price target: $195 (from 7 analysts), with Raymond James and Robert W. Baird recently raising their targets to $200 and $210, respectively.
- Risk factors: While Stifel acknowledges challenges like integration costs and $18 million in goodwill impairments tied to underperforming ground vehicle systems, it deems these manageable given AVAV's “best-in-class margins” and backlog.

Fiscal 2026 Guidance: A Launchpad for Growth

AVAV's outlook for fiscal 2026 is equally compelling:
- Revenue: Expected to hit $1.9–$2.0 billion, with BlueHalo contributing meaningfully.
- Non-GAAP EBITDA: Guided to $300–$320 million, up 100% from 2025 levels.

This growth is underpinned by $1.2 billion in bookings in fiscal 2025, with governments globally prioritizing uncrewed systems for reconnaissance, strike missions, and electronic warfare. The company's ability to diversify into cyber and directed energy (via BlueHalo) positions it to capitalize on broader defense spending trends.

Investment Thesis: Buy the Dip Ahead of Earnings

With the June 24 earnings just days away, here's why investors should consider a position:
1. Catalyst Risk-Adjusted Opportunity: The stock has dipped slightly in recent weeks as investors await results, creating a buying opportunity ahead of a likely beat.
2. Technical Momentum: The stock's 50-day moving average is holding near $180, with resistance at $200. A strong earnings report could trigger a breakout.
3. Valuation: At a current P/E of 164, the stock is expensive, but its non-GAAP EPS growth (projected to hit $3.00 in 2026) justifies the premium.

Risks to Consider

• Integration Hurdles: BlueHalo's success hinges on seamless integration, which could delay synergies.
• Geopolitical Uncertainty: A sudden de-escalation in conflicts could reduce immediate demand for munitions.
• Supply Chain Pressures: Component shortages or rising costs could squeeze margins.

Final Analysis

AeroVironment is at an inflection point. Its fiscal 2025 results will likely confirm its status as a pioneer in uncrewed defense systems, while BlueHalo's addition opens new markets. With Stifel's bullish call and a backlog signaling sustained demand, now is the time to position for what could be a multi-year growth story.

Investment Recommendation: Buy AVAV at current levels, targeting a $220–$240 price target by early 2026. Set a stop-loss below $160 to mitigate downside risk.

In a world where drones are the new tanks, AeroVironment isn't just flying high—it's rewriting the rules of modern warfare.