AeroVironment Hits Pay Dirt

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by Debra Fiakas CFA

After the market close Tuesday, AeroVironment, Inc. (AVAV:  Nasdaq) is scheduled to report financial results for the quarter ending October 2015.  Management is holding conference call with investors and analysts directly following the announcement.  It is going to be an interesting call.

AeroVironment has some crowing to do.  Hyundai recently tapped the company to provide electric vehicle charging stations at its dealerships for the 2016 Sonata plug-in hybrid model.  Sonata drivers will also have the option to buy the company’s TurboCard charging system or the wall-mounted EVSE-RS charging station.  Hyundai is the seventh car manufacturer to choose AeroVironment’s charging solutions.

AeroVironment has forged a new automotive relationship, but that might not mean a big jump in sales.  Demand for electric cars has declined along with gas prices.  Tesla is the only electric car that has not experienced a decline in unit sales.

Hyundai has not been intimidated and is expanding its electrification line-up.  The plug-in variant of the Sonata hybrid is the most recent addition.  The 2016 Sonata has an internal combustion engine augmented by an electric motor that feeds power to the front wheels.  Pure electric power gets the Sonata off to a good start and then transitions to the internal combustion engine.  The car has a larger lithium-polymer battery pack than most of the hybrids that makes it possible to reach 60 miles per hour in eight seconds.

Image result for aerovironment uav imageAeroVironment is not entirely dependent upon Hyundai or any of the other car manufacturers.  If questions about electric car demand get too uncomfortable, management can change the subject and talk about the company’s recent new order to one of its unmanned aircraft systems.   The U.S. Marine Corps is paying $13.0 million for one of the company’s Puma AE aircraft, which can be used for a remote scouting system.

The company’s mix of products and services may seem a bit eclectic, but generates solid results.  In the most recently reported twelve months the company recorded $254.6 million in total sales, of which $12.4 million was converted to operating cash flow.  The company has managed to build up cash to $217.5 million.  Cash flows are so strong management apparently sees no need for leverage.  There is no debt on the balance sheet.

The clutch of analysts who have published estimates for AeroVironment seem to think there is growth in the company’s future, but not the sort of growth the company experienced even just a year ago.  The estimates for the quarter ending October 2015 reflect a net loss of $0.09 per share on $57.7 million in total sales.  The loss situation is apparently perceived as a temporary situation, with profitability restored as early as the January 2016 quarter.  The current fiscal year ending April 2016 is shaping up as a transition year, but fiscal year 2017 is clearly expected to be a year of growth and profits.

Confidence in the future has apparently caught up with traders in AVAV.  The stock registered a particularly bullish formation in a point and figure chart a week ago called a ‘triple top breakout’ in a point and figure chart. The same chart suggests the stock has developed sufficient momentum to reach the $34.00 price level.  

Debra Fiakas is the Managing Director of
Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. 


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