International Defense Spending And BlueHalo Acquisition Will Drive Unmanned Advancements

Key Takeaways

• Rising global demand for advanced unmanned and autonomous systems is fueling AeroVironment's growth, diversification, and expansion into new high-value sectors.
  
• Strategic acquisitions and favorable government policies are enhancing product breadth, margin prospects, and long-term contract opportunities for sustained earnings momentum.
  
• Heavy dependence on government contracts, integration challenges, concentrated product risk, international regulatory headwinds, and capital-heavy growth efforts threaten profitability and long-term financial stability.

Catalysts

Designs, develops, produces, delivers, and supports a portfolio of robotic systems and related services for government agencies and businesses in the United States and internationally.

• The surge in international defense spending, especially among NATO and allied countries, is driving record orders for AeroVironment's advanced unmanned systems (e.g., Switchblade, Puma, JUMP 20), as global conflicts underscore the urgency for rapid UAS deployment-this is building a robust multi-year pipeline and supporting double-digit forward revenue growth.
  
• Accelerating adoption of autonomous, AI-enabled, and software-defined aerial and ground platforms (e.g., Red Dragon, P550, MacCready Works technologies) is expanding AeroVironment's addressable market beyond traditional military use into multi-domain operations and adjacent sectors, providing a catalyst for diversification and sustained margin expansion.
  
• The successful, transformative acquisition of BlueHalo significantly broadens AeroVironment's product portfolio into high-priority areas such as space communication, directed energy, electronic warfare, and cybersecurity-enhancing customer lock-in and providing opportunities for cross-segment revenue synergies and increased visibility for long-term earnings.
  
• Growing policy focus on minimizing risk to human soldiers is accelerating the transition toward unmanned and autonomous solutions, which benefits AeroVironment due to its scalable manufacturing capacity and established reputation for battle-proven reliability, likely enabling faster conversion of backlog to revenues and improved operating leverage.
  
• Favorable regulatory momentum and near-term government initiatives (such as the U.S. Army's drone transformation and multibillion-dollar modernization programs) increase AeroVironment's likelihood of securing incremental, high-margin contracts in FY26 and beyond, directly impacting backlog growth and supporting higher forward earnings expectations.

AeroVironment Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming AeroVironment's revenue will grow by 47.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.3% today to 9.0% in 3 years time.
• Analysts expect earnings to reach $236.6 million (and earnings per share of $5.9) by about August 2028, up from $43.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $292.2 million in earnings, and the most bearish expecting $135.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 89.2x on those 2028 earnings, down from 268.0x today. This future PE is greater than the current PE for the US Aerospace & Defense industry at 33.5x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.58%, as per the Simply Wall St company report.

AeroVironment Future Earnings Per Share Growth

Risks

• AeroVironment's heavy reliance on U.S. government and Department of Defense funding and the timing of congressional budget approvals introduces ongoing revenue uncertainty and volatility, as delays or shifts in government fiscal priorities could reduce or postpone contract awards and impact topline growth. (Likely to impact revenue and earnings visibility)
  
• Post-acquisition integration with BlueHalo brings elevated SG&A expenses and deal-related integration costs ($40–$45 million), creating near
• to mid-term pressure on operating margins, with risk that anticipated synergies or cross-selling opportunities may not materialize as expected. (May compress net margins and dampen profitability)
  
• The company's product portfolio remains concentrated in loitering munitions, small UAS, and related defense technologies, exposing AeroVironment to technology obsolescence, rapid competitive innovation, and the risk that emerging counter-drone/anti-UAS systems could reduce demand or erode market share. (Could threaten future revenue streams and operating margins)
  
• Increased international expansion, while supporting revenue growth, also exposes AeroVironment to heightened regulatory scrutiny, potential export restrictions (especially on new products like Red Dragon as policies or ITAR evolve), and fluctuating geopolitical alliances that could suddenly curtail addressable markets or contract opportunities. (Risk to future international revenues)
  
• Ongoing investment in manufacturing scale-up, R&D, and capital expenditures to chase growth opportunities raises concerns about sustained pressure on free cash flow and return on invested capital, particularly if revenue growth does not meet elevated projections or if operational execution falls short. (Could reduce net margins and strain long-term earnings/cash generation)

Valuation

• The analysts have a consensus price target of $282.57 for AeroVironment based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $325.0, and the most bearish reporting a price target of just $157.27.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.6 billion, earnings will come to $236.6 million, and it would be trading on a PE ratio of 89.2x, assuming you use a discount rate of 7.6%.
• Given the current share price of $235.18, the analyst price target of $282.57 is 16.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.