Recently, we heard about drone maker and defense contractor AeroVironment (AVAV), as it sought to get a place at the table for developing the Golden Dome defense project. It had a lot of “pieces of the puzzle,” it asserted, though where that will go is anyone’s guess. However, we know where AeroVironment stock went in Tuesday afternoon’s trading: straight down. AeroVironment shares lost over 8% of their value after the company announced a new plan to take on debt. A lot of debt.
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AeroVironment’s plan was to offer up $600 million in convertible senior notes due in 2030, with an eye toward paying down its debt. It also planned to put up a new stock offering of $750 million, also in a move to pay down debt. If there was any money left after that $1.35 billion cash raise, AeroVironment officials noted, it would use those for the ever-popular “general corporate purposes,” which includes the possibility of upgrading its manufacturing operations.
A quick look notes that AeroVironment currently has a market cap of $11.79 billion, so it is planning to raise cash equivalent to just over 10% of its total value. With shares up nearly 70% for the last year, it is not surprising that AeroVironment would want to raise a little cash on the strength of much, much more valuable shares. Though the shares are likely to suffer a little dilution with all that extra stock floating around.
But Trouble Lies Ahead
The news comes at a particularly sensitive time for AeroVironment, as reports noted that it recently warned shareholders about potential supply chain problems. Yes, the universal excuse that most thought was dead after COVID-19 restrictions finally died out is back, and AeroVironment may be in for the worst of it.
There were “significant business risks” ahead, the company noted, starting with “increased tariffs” and “…uncertainty surrounding the reinstatement of paused tariffs and potential retaliatory measures….” And while it is certainly true that the trade war is a fluid situation—wars have a way of being fluid situations, regardless of whether they are trade or shooting wars—it is inherent on a company to prepare for such disruptions. To its credit, reports note that AeroVironment is working to do just that.
Is AeroVironment a Good Stock to Buy?
Turning to Wall Street, analysts have a Strong Buy consensus rating on AVAV stock based on six Buys assigned in the past three months, as indicated by the graphic below. After a 66.44% rally in its share price over the past year, the average AVAV price target of $235 per share implies 9.7% downside risk.
