Analysts recommended buying shares of a mid-cap drone manufacturer. What will drive its stock higher?

Analysts at Raymond James recommended that investors buy shares of AeroVironment, a mid-cap drone manufacturer. Drones are one of the most effective ways to invest in the modernization of the U.S. military, which reflects the company’s long-term revenue growth prospects, according to the analysts’ research note.

CNBC reported that Raymond James upgraded its rating on AeroVironment shares from Market Perform (equivalent to a “hold” recommendation) to Outperform (“buy”).

Analysts have set a target price of $210 for the company’s stock for the first time, according to Yahoo Finance. On Thursday, July 16, AeroVironment shares rose 5.7% to $149.3. Thus, Raymond James’ target price implies growth potential of nearly 41% relative to the last closing price. In premarket trading on July 17, the stock is down about 2%.

"The high target price is justified given the recent growth in AeroVironment's order backlog, improvements in order quality, and the accelerated pace of product upgrades for the autonomous systems segment," explains Raymond James analyst Brian Gesualle.

The U.S. Army is in talks with a drone manufacturer regarding the Enduring High Energy Laser program, Lieutenant General Frank Lozano, who oversees the department’s missile programs, said on July 14. According to estimates by Raymond James, the contract, if awarded, could be worth approximately $500 million to AeroVironment.

A week earlier, the company signed a flexible contract for the same amount with U.S. domestic security agencies, under which it will supply them with counter-drone systems. According to Gesuale’s estimates, AeroVironment’s order backlog could grow by 20% quarter over quarter, making the company the leader among manufacturers of drone countermeasures. As of April 30, the company’s funded order backlog stood at $1.2 billion. This figure includes contracts that have not yet been fulfilled but for which funding has already been allocated.

"Drones are one of the most effective ways to invest in the modernization of the armed forces, providing access to virtually all major growth areas in the defense sector," says an analyst at Raymond James.

Since the beginning of the year, AeroVironment's stock price has fallen by more than 38%. Over the past 12 months, it has fallen by 44.5%.

The U.S. government shutdown in 2025 led to the suspension of government funding and a downward revision of the company’s forecast for fiscal year 2026, which ended on April 30, CNBC explains. In March, AeroVironment lost a contract worth approximately $1.7 billion with the U.S. Space Force to develop new antennas for aging military satellites.

In July, the company unveiled its growth strategy through 2030, which calls for a 15–20% annual increase in revenue.

Following this, RBC Capital downgraded the company’s rating from “Buy” to “Hold” and lowered its price target from $210 to $180 (representing 20.5% upside potential relative to the last closing price). They believed that this forecast created overly optimistic expectations.

However, most Wall Street analysts are optimistic about the company's prospects: its stock has 20 "buy" ratings, two "hold" ratings, and no "sell" ratings.