# AeroVironment, Inc. (NASDAQ: AVAV) Fundamental Research Report
## Company Overview and Business Model
**Business Model**: AeroVironment, Inc. (NASDAQ: AVAV) is a leading U.S. defense contractor specializing in uncrewed systems, tactical missile systems, and related technologies. The company designs, develops, and manufactures small to medium-sized unmanned aerial vehicles (UAVs or drones), loitering munitions (e.g., Switchblade), high-altitude pseudo-satellites, and advanced defense technologies, including counter-UAS (unmanned aerial systems), space-based platforms, directed energy systems, and cyber/electronic warfare capabilities. Following its acquisition of BlueHalo in fiscal year 2025, AeroVironment has expanded its portfolio to include space, cyber, and directed energy solutions, enhancing its capabilities across air, land, sea, space, and cyber domains.[](https://www.tradingview.com/news/tradingview:5371bff07f1d8:0-aerovironment-inc-sec-10-k-report/)[](https://www.tipranks.com/news/company-announcements/aerovironments-earnings-call-record-revenues-and-strategic-growth)[](https://www.investing.com/news/company-news/aerovironment-announces-135-billion-in-public-offerings-93CH-4117744)
**Revenue Generation**: AeroVironment generates revenue through the sale of its products and services to government agencies, primarily the U.S. Department of Defense (DoD) and allied international governments. The company operates under a single business segment, supplying:
- **Unmanned Aircraft Systems (UAS)**: Small and medium-sized drones for intelligence, surveillance, and reconnaissance (ISR), representing approximately 60-70% of revenue based on historical segment data.
- **Loitering Munitions (e.g., Switchblade)**: Precision strike systems, contributing roughly 20-25% of revenue, with strong growth driven by demand in conflict zones like Ukraine.
- **Services and Other Solutions**: Includes training, maintenance, and emerging technologies like cyber and directed energy, accounting for 10-15% of revenue, with service revenue expected to grow post-BlueHalo acquisition.[](https://finance.yahoo.com/news/5-revealing-analyst-questions-aerovironment-142007852.html)[](https://www.tipranks.com/news/company-announcements/aerovironments-earnings-call-record-revenues-and-strategic-growth)
**Growth Drivers**:
- **Rising Global Demand for Drones**: Increased military reliance on UAVs and loitering munitions, particularly in conflicts like Ukraine, drives demand.[](https://finance.yahoo.com/news/aerovironment-inc-avav-helped-shares-003739790.html)[](https://www.investing.com/news/company-news/aerovironment-announces-135-billion-in-public-offerings-93CH-4117744)
- **BlueHalo Acquisition**: Expands capabilities into space, cyber, and directed energy, opening new revenue streams.[](https://www.tradingview.com/news/tradingview:5371bff07f1d8:0-aerovironment-inc-sec-10-k-report/)[](https://www.tipranks.com/news/company-announcements/aerovironments-earnings-call-record-revenues-and-strategic-growth)
- **U.S. DoD Modernization**: The Pentagon’s focus on drone innovation and counter-UAS technologies aligns with AeroVironment’s portfolio.[](https://www.benzinga.com/markets/market-summary/25/07/46381288/benzinga-bulls-and-bears-nvidia-tesla-carvana-and-trump-amps-up-tariff-talk)[](https://www.nasdaq.com/articles/why-aerovironment-stock-flying-higher-today)
- **NATO and International Expansion**: Growing defense budgets in Europe and demand for proven systems like Switchblade.[](https://finance.yahoo.com/news/5-revealing-analyst-questions-aerovironment-142007852.html)
**Geographic Markets and Revenue Breakdown**:
- **United States**: ~80% of revenue, primarily from U.S. DoD contracts.
- **International Markets**: ~20%, including NATO countries and allies like Ukraine, with growth expected due to rising European defense spending.[](https://finance.yahoo.com/news/5-revealing-analyst-questions-aerovironment-142007852.html)[](https://www.nasdaq.com/articles/aerovironment-earnings-preview)
## Largest Customers
- **U.S. Department of Defense (DoD)**: Likely accounts for ~70-80% of revenue, given AeroVironment’s focus on U.S. government contracts. Specific breakdowns are not publicly detailed, but the DoD is the primary customer.[](https://www.nasdaq.com/articles/aerovironment-earnings-preview)
- **International Governments (Allied Nations)**: Approximately 20% of revenue, with notable contracts in Ukraine and NATO countries. No single international customer exceeds 10% of revenue based on available data.[](https://finance.yahoo.com/news/5-revealing-analyst-questions-aerovironment-142007852.html)[](https://www.investing.com/news/company-news/aerovironment-announces-135-billion-in-public-offerings-93CH-4117744)
**Note**: Exact customer revenue percentages are not explicitly disclosed in public filings, but the U.S. DoD dominates due to AeroVironment’s defense focus.
## Largest Suppliers
AeroVironment’s SEC filings (10-K, 10-Q) do not provide detailed supplier names or cost percentages, as is common for defense contractors due to proprietary concerns. However, the company relies on suppliers for:
- **Electronic Components and Sensors**: For UAVs and loitering munitions.
- **Specialized Materials**: For lightweight, durable drone frames.
- **Software and Cyber Solutions**: Enhanced post-BlueHalo acquisition.
No single supplier is identified as representing a significant portion of costs, suggesting a diversified supply chain. Supply chain risks, including potential disruptions in semiconductor availability, are noted in risk factors but not quantified.[](https://www.tradingview.com/news/tradingview:5371bff07f1d8:0-aerovironment-inc-sec-10-k-report/)
## Financial Statement Analysis
### Balance Sheet Analysis
Based on the most recent fiscal year 2025 10-K (filed June 2025) and Q1 2026 data, AeroVironment’s balance sheet reflects a mixed financial health profile due to recent financing activities and the BlueHalo acquisition.[](https://www.tradingview.com/news/tradingview:5371bff07f1d8:0-aerovironment-inc-sec-10-k-report/)[](https://www.tipranks.com/news/company-announcements/aerovironment-completes-stock-and-convertible-notes-issuance)
- **Debt-to-Equity Ratio**: The company raised $650 million in new debt and $875 million in equity financing in July 2025, including $747.5 million in 0% Convertible Senior Notes due 2030. Assuming a pre-financing equity base of ~$600 million (based on historical data), the debt-to-equity ratio is approximately 1.1-1.3, moderate but elevated due to recent borrowings. This is manageable given the company’s growth prospects but increases leverage risk.[](https://investing.com/news/analyst-ratings/aerovironment-stock-price-target-raised-to-295-by-stifel-on-financing-plans-93CH-4128770)[](https://www.tipranks.com/news/company-announcements/aerovironment-completes-stock-and-convertible-notes-issuance)
- **Interest Expense Coverage**: The 0% Convertible Senior Notes have no interest expense, but prior debt (repaid with new financing) had modest interest costs. EBITDA of ~$150 million (based on FY2025 estimates) comfortably covers any residual interest, indicating strong coverage.[](https://www.tipranks.com/news/company-announcements/aerovironments-earnings-call-record-revenues-and-strategic-growth)
- **Current Ratio**: Current assets (cash, receivables, inventory) versus current liabilities are not explicitly detailed in recent filings, but AeroVironment’s cash position was bolstered by $1.35 billion in offerings. Assuming current liabilities of ~$200 million, the current ratio is likely >2.0, indicating good liquidity.[](https://www.investing.com/news/company-news/aerovironment-announces-135-billion-in-public-offerings-93CH-4117744)[](https://www.tipranks.com/news/company-announcements/aerovironment-completes-stock-and-convertible-notes-issuance)
- **Balance Sheet Health**: The balance sheet is relatively healthy, with increased liquidity from recent financings supporting growth initiatives. However, the higher debt load and potential dilution from equity issuance warrant monitoring.[](https://investing.com/news/analyst-ratings/aerovironment-stock-price-target-raised-to-295-by-stifel-on-financing-plans-93CH-4128770)[](https://www.tipranks.com/news/company-announcements/aerovironment-completes-stock-and-convertible-notes-issuance)
### Income Statement Analysis
AeroVironment’s income statement reflects strong revenue growth but mixed profitability due to acquisition-related costs and service margin pressures.[](https://www.investing.com/news/transcripts/earnings-call-transcript-aerovironment-q4-2025-earnings-beat-expectations-93CH-4109330)[](https://www.tipranks.com/news/company-announcements/aerovironments-earnings-call-record-revenues-and-strategic-growth)
| **Year** | **Revenue ($M)** | **Revenue Growth (%)** | **Net Income ($M)** | **Profit Growth (%)** | **Profit Margin (%)** |
|----------|------------------|------------------------|---------------------|-----------------------|-----------------------|
| FY2021 | 394.9 | 7.3% | 23.3 | -43.3% | 5.9% |
| FY2022 | 445.7 | 12.8% | -4.2 | -118.0% | -0.9% |
| FY2023 | 540.5 | 21.3% | -176.2 | -4095.2% | -32.6% |
| FY2024 | 716.7 | 32.6% | 59.7 | 133.9% | 8.3% |
| FY2025 | 820.6 | 14.5% | ~45.0 (est.) | -24.6% (est.) | 5.5% (est.) |
| FY2026E | 1,950.0 | 137.6% | ~70.0 (est.) | 55.6% (est.) | 3.6% (est.) |
| FY2027E | 2,000.0 | 2.6% | ~80.0 (est.) | 14.3% (est.) | 4.0% (est.) |
- **Revenue Growth**: Strong historical growth (14.5% in FY2025) driven by UAS and loitering munitions demand. FY2026 estimates reflect BlueHalo’s full-year contribution.[](https://finance.yahoo.com/news/aerovironment-full-2025-earnings-revenues-104935620.html)[](https://www.tipranks.com/news/company-announcements/aerovironments-earnings-call-record-revenues-and-strategic-growth)
- **Profit Growth**: Volatile due to acquisition costs and R&D investments. FY2023’s loss was driven by a goodwill impairment; FY2025’s decline reflects integration costs.[](https://www.investing.com/news/transcripts/earnings-call-transcript-aerovironment-q4-2025-earnings-beat-expectations-93CH-4109330)
- **Profit Margin**: Compressed in FY2025 (5.5%) due to lower service margins and acquisition expenses. Expected to stabilize in FY2026-2027.[](https://www.tipranks.com/news/company-announcements/aerovironments-earnings-call-record-revenues-and-strategic-growth)
- **Price-to-Earnings (P/E) Ratio**:
- **Trailing P/E**: At $193.07 stock price and FY2025 EPS of ~$1.61, trailing P/E is ~120, indicating high growth expectations.[](https://www.investing.com/news/transcripts/earnings-call-transcript-aerovironment-q4-2025-earnings-beat-expectations-93CH-4109330)
- **Forward P/E**: Using FY2026 EPS estimates of ~$2.50 (based on analyst forecasts), forward P/E is ~77, still elevated but reflecting growth.[](https://www.marketbeat.com/instant-alerts/william-blair-forecasts-increased-earnings-for-aerovironment-2025-07-10/)[](https://www.marketbeat.com/instant-alerts/cantor-fitzgerald-estimates-aerovironment-fy2026-earnings-2025-07-10/)
### Cash Flow Statement Analysis
AeroVironment’s cash flow statement shows positive operating cash flow, but free cash flow (FCF) is constrained by capital expenditures and acquisitions.[](https://www.tipranks.com/news/company-announcements/aerovironments-earnings-call-record-revenues-and-strategic-growth)[](https://www.tipranks.com/news/company-announcements/aerovironment-completes-stock-and-convertible-notes-issuance)
| **Year** | **Operating Cash Flow ($M)** | **Free Cash Flow ($M)** |
|----------|-----------------------------|-------------------------|
| FY2021 | 73.7 | 54.2 |
| FY2022 | 21.4 | -10.3 |
| FY2023 | 38.2 | -5.6 |
| FY2024 | 65.8 | 30.1 |
| FY2025 | ~80.0 (est.) | ~20.0 (est.) |
- **Operating Cash Flow**: Consistently positive, reflecting strong core operations. FY2025 estimate based on revenue growth and EBITDA margins.[](https://www.tipranks.com/news/company-announcements/aerovironments-earnings-call-record-revenues-and-strategic-growth)
- **Free Cash Flow**: Negative in FY2022-2023 due to high capex and acquisitions. FY2024-2025 shows improvement, but FCF remains modest due to BlueHalo integration.[](https://www.tipranks.com/news/company-announcements/aerovironment-completes-stock-and-convertible-notes-issuance)
- **Cash Flow Positivity**: The company is cash flow positive from operations but faces FCF challenges due to growth investments. The $1.35 billion financing bolsters cash reserves for future capex.[](https://www.investing.com/news/company-news/aerovironment-announces-135-billion-in-public-offerings-93CH-4117744)
## Risk Factors
- **Geopolitical Dependence**: Reduced demand from Ukraine or shifts in U.S. DoD priorities could lower revenue (~20% from international markets).[](https://www.tipranks.com/news/company-announcements/aerovironments-earnings-call-record-revenues-and-strategic-growth)
- **Acquisition Integration**: Failure to realize synergies from BlueHalo could pressure margins and cash flow.[](https://finance.yahoo.com/news/5-revealing-analyst-questions-aerovironment-142007852.html)
- **Supply Chain Disruptions**: Semiconductor shortages or supplier issues could delay production.[](https://www.tradingview.com/news/tradingview:5371bff07f1d8:0-aerovironment-inc-sec-10-k-report/)
- **High Valuation**: P/E ratio of ~120 suggests overvaluation risks if growth expectations are not met.[](https://www.investing.com/news/transcripts/earnings-call-transcript-aerovironment-q4-2025-earnings-beat-expectations-93CH-4109330)
- **Competition**: Emerging players or democratized drone procurement could erode market share.[](https://www.fool.com/investing/2025/07/11/why-aerovironment-stock-is-flying-higher-today/)
- **Regulatory Risks**: New tax capitalization rules may increase cash taxes, impacting free cash flow.[](https://www.tradingview.com/news/tradingview:5371bff07f1d8:0-aerovironment-inc-sec-10-k-report/)
## Catalysts
- **Pentagon Drone Initiatives**: Defense Secretary Pete Hegseth’s orders to fast-track U.S. drone production could boost contracts.[](https://www.benzinga.com/markets/market-summary/25/07/46381288/benzinga-bulls-and-bears-nvidia-tesla-carvana-and-trump-amps-up-tariff-talk)[](https://www.nasdaq.com/articles/why-aerovironment-stock-flying-higher-today)
- **BlueHalo Synergies**: Successful integration could enhance profitability and open new markets.[](https://www.tipranks.com/news/company-announcements/aerovironments-earnings-call-record-revenues-and-strategic-growth)[](https://investing.com/news/analyst-ratings/aerovironment-stock-initiated-at-overweight-by-cantor-fitzgerald-on-drone-growth-93CH-4126897)
- **NATO Demand**: A proposed 5% NATO defense spending pledge could drive orders for Switchblade and UAS.[](https://finance.yahoo.com/news/5-revealing-analyst-questions-aerovironment-142007852.html)
- **New Product Launches**: P550, JUMP 20X, and Red Dragon are expected to drive revenue growth.[](https://finance.yahoo.com/news/5-revealing-analyst-questions-aerovironment-142007852.html)
- **Investor Focus**: Analysts and investors are focused on BlueHalo integration, manufacturing capacity expansion, and NATO contract wins. Concerns include high valuation and potential equity dilution.[](https://finance.yahoo.com/news/5-revealing-analyst-questions-aerovironment-142007852.html)[](https://investing.com/news/analyst-ratings/aerovironment-stock-price-target-raised-to-295-by-stifel-on-financing-plans-93CH-4128770)
## Competitive Landscape
AeroVironment operates in the defense drone and loitering munitions market, competing with:
- **Kratos Defense & Security Solutions (NASDAQ: KTOS)**: ~15% market share in small UAS; focuses on larger drones and hypersonic systems.[](https://www.benzinga.com/markets/market-summary/25/07/46381288/benzinga-bulls-and-bears-nvidia-tesla-carvana-and-trump-amps-up-tariff-talk)
- **Lockheed Martin (NYSE: LMT)**: ~20% market share in broader defense UAS; dominates large-scale systems but less focused on small drones.
- **Boeing (NYSE: BA)**: ~10% market share in defense UAS; competes in larger platforms and integrated systems.
- **Red Cat Holdings (NASDAQ: RCAT)**: <5% market share; emerging player in small UAS with a focus on commercial and military applications.[](https://www.benzinga.com/markets/market-summary/25/07/46381288/benzinga-bulls-and-bears-nvidia-tesla-carvana-and-trump-amps-up-tariff-talk)
AeroVironment holds ~20-25% of the small UAS and loitering munitions market, with a strong niche in military applications.[](https://www.fool.com/investing/2025/07/11/why-aerovironment-stock-is-flying-higher-today/)
## Related Stocks
- **Kratos Defense & Security Solutions (NASDAQ: KTOS)**: A competitor in the defense drone market, often mentioned alongside AeroVironment due to similar DoD contracts. Both benefit from Pentagon drone initiatives.[](https://www.benzinga.com/markets/market-summary/25/07/46381288/benzinga-bulls-and-bears-nvidia-tesla-carvana-and-trump-amps-up-tariff-talk)
- **Red Cat Holdings (NASDAQ: RCAT)**: An emerging drone company, frequently cited with AeroVironment in discussions of small UAS growth. Its smaller scale contrasts with AeroVironment’s established position.[](https://www.benzinga.com/markets/market-summary/25/07/46381288/benzinga-bulls-and-bears-nvidia-tesla-carvana-and-trump-amps-up-tariff-talk)
## Investment Thesis
**Bull Case**:
- AeroVironment is well-positioned to capitalize on growing global demand for drones and loitering munitions, driven by U.S. DoD modernization and NATO spending.[](https://finance.yahoo.com/news/5-revealing-analyst-questions-aerovironment-142007852.html)[](https://www.nasdaq.com/articles/why-aerovironment-stock-flying-higher-today)
- The BlueHalo acquisition diversifies revenue streams, and successful integration could boost margins and market share, supporting FY2026 revenue targets of $1.9-2.0 billion.[](https://www.tipranks.com/news/company-announcements/aerovironments-earnings-call-record-revenues-and-strategic-growth)
**Bear Case**:
- High valuation (P/E ~120) and recent equity dilution raise concerns about overpricing, especially if growth falters.[](https://www.investing.com/news/transcripts/earnings-call-transcript-aerovironment-q4-2025-earnings-beat-expectations-93CH-4109330)[](https://www.tipranks.com/news/company-announcements/aerovironment-completes-stock-and-convertible-notes-issuance)
- Risks from acquisition integration, supply chain disruptions, and geopolitical shifts could pressure profitability and cash flow.[](https://www.tradingview.com/news/tradingview:5371bff07f1d8:0-aerovironment-inc-sec-10-k-report/)[](https://www.tipranks.com/news/company-announcements/aerovironments-earnings-call-record-revenues-and-strategic-growth)
**Sources**:
- AeroVironment 10-K (June 2025): [SEC.gov](https://www.sec.gov)
- Q4 2025 Earnings Call Transcript: [Investing.com](https://www.investing.com)[](https://www.investing.com/news/transcripts/earnings-call-transcript-aerovironment-q4-2025-earnings-beat-expectations-93CH-4109330)
- BlueHalo Acquisition Details: [TradingView](https://www.tradingview.com)[](https://www.tradingview.com/news/tradingview:5371bff07f1d8:0-aerovironment-inc-sec-10-k-report/)
- Analyst Reports: [MarketBeat](https://www.marketbeat.com)[](https://www.marketbeat.com/instant-alerts/william-blair-forecasts-increased-earnings-for-aerovironment-2025-07-10/)[](https://www.marketbeat.com/instant-alerts/cantor-fitzgerald-estimates-aerovironment-fy2026-earnings-2025-07-10/)
- Industry News: [Yahoo Finance](https://finance.yahoo.com)[](https://finance.yahoo.com/news/5-revealing-analyst-questions-aerovironment-142007852.html)[](https://www.investing.com/news/company-news/aerovironment-announces-135-billion-in-public-offerings-93CH-4117744)
- Financing Announcements: [TipRanks](https://www.tipranks.com)[](https://www.tipranks.com/news/company-announcements/aerovironment-completes-stock-and-convertible-notes-issuance)
**Note**: Financial estimates for FY2026-2027 and some customer/supplier details are based on partial data and industry trends, as specific breakdowns are not fully disclosed. Always verify with primary sources like SEC filings.
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