Bigger Picture; Some Footage
Using Nets to trap Drones
I have seen another video of using scissors with drone jammers to trap them or detonate them early (I’m not clear on how they work however).
Above is the new “Bee drone” seen in Ukraine. The UAV is capable of carrying and airdropping FPV (first-person view) drones . Moreover, it also serves as a signal repeater, increasing the range of other drones.
The Point
Warfare always evolves; in many ways it is the driver of new technology and innovations that drive local economies. As far as I can tell, there is a massive amount of centralization coming due to the emergence of AI and machine learning protocols; however little coverage or perhaps excitement has been realized around drone use-cases in all sectors, particularly warfare. From the Russians I have spoke with, they are all-too familiar with the skies being the new battlefield.
There is a whole new industry developing whereby the billions and billions normally heading into the defence industry (Trump just signed a 1T USD defence budget) for human-related items and small devices, will be redirected elsewhere. This new battlefield, even if the device is something you can make “homemade” for 200 dollars, are drones and robotics.
Drones are now ***70%*** of battlefield casualties in the Ukraine war.
Company
AeroVironment, Inc. specializes in designing, developing, and supporting robotic systems and related services for government agencies and businesses globally, with a market cap of approximately $5.45 billion. They operate under a single business segment in which it supplies unmanned aircraft systems, tactical missile systems, high-altitude pseudo-satellites, and other related services to government agencies within the United States Department of Defence as well as the United States allied international governments.
The systems can help with security, surveillance, or sensing, and provide eyes in the sky without needing an actual person, or driver in the sky.
https://www.avinc.com/uas <–their products
Noticing
I’ve noticed this stock years ago as a potential new generation defence stock noticing that this is the direction the battlefield will be fought. However, it was in my watch list and nothing more; the other day I returned to it after noticing their major acquisition of a drone company owning approximately 60% of their shares for over 4B USD dollars. Here are some reasons why I believe this is an interesting pick!
The biggest tech game-changer in Russia–Ukraine war – and all future wars – is the advancement in drones. Russians have really taken it to the next level. The drones can hunt down and destroy fast-moving targets! The Russian drones are like velociraptors
Stock Info
P/E: 161
Forward P/E: 47.87
P/B: 6.23
P/S: 7.2
Beta: 1.02
P/FCF: 138
Price/Net current asset value: 15.03
52-wk high 236.60
52-wk low 116.51
Shares outstanding:
| 45.64 |
Balance Sheet
From Simply Wall St’s evaluation assuming their discounted cash flow factors
AV has delivered the vast majority of all uncrewed aircraft in the U.S. Department of Defense inventory
Their Moat Score has now clocked in as a 6/10
Cash Flow
The company’s revenue segments include Maccready Works at $70.44 million, UnCrewed Systems at $469.78 million, and Loitering Munitions Systems at $213.64 million.
The company has become profitable and forecasts indicate robust earnings growth at 28.53% annually over the next three years, outpacing market averages. Unlikely companies with extreme debt, they have profitable the last 8 of 10 years.
The Business
Year End (2024); Future
As of the end of the year they have posted a funded backlog of $763.5M3 which marked a +65% increase YoY. For AV, it set a record backlog due to record Switchblade and J20 orders. This backlog is 4.55X greater than their total revenue for the quarter.
Their unfunded backlog, [An "unfunded backlog" represents work authorized by a contract but not yet fully funded, meaning payment is not guaranteed until additional funding is appropriated] represents a colossal $1,429.9M, or a +977% increase YoY.
If we assume that a significant percentage of these orders are from the US Government, it may be a speculation worthwhile that the unfunded category will become funded with time.
Their future guidance for 2025 Fiscal Year is $780 million – $795 million, about a 10% revenue increase from last year.
News
AV will acquire BlueHalo in an all-stock transaction with an enterprise value of approximately $4.1 billion, creating a more diversified global leader in all-domain defence technologies. The combined company will bring together complementary capabilities to offer a comprehensive portfolio of high-growth franchises, powered by cutting-edge technology and focused on addressing the most important priorities and needs of our nation and allies around the globe.
Blue Halos’ departments are the following: Space Technologies, Counter-Uncrewed Aircraft Systems (cUAS), Directed Energy, Electronic Warfare, Cyber, Artificial Intelligence and other Emerging Technologies including Un-crewed Underwater Vehicles (UUVs).
Latest Earnings Call
- Record first quarter revenue of $189.5 million up 24% year-over-year
- First quarter net income of $21.2 million and adjusted EBITDA of $37.2 million
- In August 2024 awarded U.S. Army Lethal Unmanned Systems Indefinite Delivery, Indefinite Quantity (“IDIQ”) with a record contract ceiling value of $990 million and initial funding of $128 million
- Income from operations for the first quarter of fiscal 2025 was $23.1 million
as compared to $26.4 million for the first quarter of last fiscal year.
At the time of writing, AV’s products are utilized by 55 so-called Allied Nations
Things I Like
- In the right industry at the correct chaotic time; growth is obvious where they had become increasingly profitable and their Forward P/E also suggests increased earnings
- Acquiring companies
- Israel, Washington and Brussels are hungry for a fight; poised to grow in further geopolitical tensions
- Growing and signing huge contracts creating a nice backlog book for themselves
- Future Technology that is still advancing but still holds proven use case in surveillance, threat detection, delivery-system search-and-rescue, defensive and offensive attacks
“The future wars are really going to be drone wars. If your drones are better than their drones, then you win.”-Musk
Hang on, HUGE Problem here…
It won’t be long until you discover that most of the drone production in the world actually comes from China. You may have encountered headlines stating:
“China helps Russia pull ahead in lethal drone war race with Ukraine Beijing denies helping Moscow, but Russia is scaling up both the production and the sophistication of its drones" <–which explain their sophistication in Ukraine.
China currently controls close to 90 percent of the global commercial drone market, and manufactures most of the key hardware used to build them – airframes, batteries, radios, cameras and screens, according to market research firm Drone Industry Insights UG
The fact of the situation is that the majority of drones are sourced from China. China dominates the global commercial drone market, controlling about 80% of the global market share.
Solution: Government Contracts Means Money-Printer-Level Security
In the latest waste of money sent to what’s left of Ukraine, to a huge tune of $725M dollars (to complement the 10s of Billions already), AVAV’s products were good enough to make the list of purchases!
"AeroVironment products are referenced in the military assistance package. Specifically, **Switchblade** drones would fall under the "Counter-Unmanned Aerial Systems (c-UAS) munitions" and "Unmanned Aerial Systems (UAS)" categories mentioned in the $725 million assistance package"
- AeroVironment (NASDAQ:AVAV) has signed a Memorandum of Understanding (MOU) with Hans Christian Andersen Airport in Odense, Denmark–home to the UAS Denmark Test Center–to explore joint utilization of the center’s expansive airspace and advanced test facilities.
- The agreement aims to leverage UAS Denmark’s strategic range and infrastructure to support AV’s uncrewed aircraft system (UAS) demonstration operations, mission training, and customer integration activities across the region.
You can see they’ve secured significant contracts related to military systems that have been used in Ukraine in prior months as well
Major Contracts A $990 million contract was awarded by the U.S. Army in August 2024 for Switchblade loitering munitions systems. Additionally, in October 2024, the company received another contract with a $743 million ceiling and $54.9 million in immediate funding.
Ukraine-Specific Developments AeroVironment has recently expanded its presence in Ukraine by signing an agreement to produce Switchblade 600 loitering munitions locally in partnership with a Ukrainian company. The Switchblade systems have been included in U.S. assistance packages to Ukraine since 2022. The exact portion of these contracts specifically allocated for Ukraine cannot be determined from the available information, as these contracts cover supplies to multiple recipients including the U.S. Army and various allied partners such as Lithuania, Romania, and Sweden
Writers Add-On
We are now seeing a movement of neo-mercantilism particularly from the United States that involves more protectionist ideologies and policies (tariffs, “MAGA”, onshoring companies, remittance of gold, tax changes, nationalizing of assets, opening up Alaska and tough talk against neighbours). Ultimately, this will be a net benefit for US company shareholders and large insiders into the apparatus of “the Swamp” that Trump promised to remove at the expense of the United States citizens who are going to face stagflation leading to less and more expensive items on the shelf.
We are now on the edge of a truly globally involved war. Here are my weekly thoughts on the major situation unfolding in the world. Please pick up my WEIGH IN WEEKLY or MY INTERNATIONAL NEWSPAPER!
https://mailchi.mp/58d0aab0f497/newsletter-email
Closing
AeroVironment is emerging as a primary defence contractor at a time when people are overtly announcing that we are in or near World War 3. Whether we want it or not, usage of drones has become the face of modern warfare. AeroVironment is an emerging company which a steady balance sheet, upcoming revenues on the books and increasing closeness to money-spending congress. Recent strategic moves include acquiring BlueHalo LLC and enhancing product capabilities through software updates could bolster future performance as well.
AV is not a value stock, will only likely pay a tiny dividend, if any, and is likely going to keep significant expenses (provisions, R&D, SG&A) on their balance sheet. Despite this, their promising growth and revenue expansion will make them one of the only true growth stocks during a larger monetary contraction during the new global depression.
I’ve written previously about sin stocks below:
but I believe that this is another company that you can throw into the mix as the new age of warfare roles onward. I’ll leave you with this final bit of where we sit with respect to drone technology and advantages.
For the first time, an autonomous drone defeated the top human pilots in an international drone racing competition
An interesting buying opportunity if you ask me. Do you have other stocks in mind for this emerging sector? Let me know in the member chat
