Defense contractor AeroVironment slides on potential Ukraine peace talks

Shares of AeroVironment, a small-cap defense contractor that has been supplying munitions to Ukraine, fell 6.5% yesterday, February 12, after Donald Trump announced that he had agreed with Russia to start negotiations to stop the conflict in Ukraine. The company claims that it has growth prospects regardless of the outcome of these talks, and analysts largely recommend buying the stock.

Yesterday, AeroVironment stock dropped 6.5% to its lowest level in nearly a month. However, it is still up by about a third over the last 12 months

Yesterday, U.S. President Donald Trump had a phone call with his Russian counterpart, Vladimir Putin. Following it, Trump announced that they had agreed to immediately begin negotiations to stop the Ukraine conflict. Later, Trump also had a call with Ukrainian President Volodymyr Zelensky, who then stated on his Telegram account that the conversation was also focused on “the possibility of achieving peace.”

Earlier in the day, U.S. Defense Secretary Pete Hegseth addressed NATO colleagues, stating that the conflict between Ukraine and Russia needed to be brought to an end. “We want, like you, a sovereign and prosperous Ukraine, but we must start by recognizing that returning to Ukraine’s pre-2014 borders is an unrealistic objective. Chasing this illusionary goal will only prolong the war and cause more suffering,” Barron’s quoted Hegseth as saying.

AeroVironment manufactures autonomous systems, such as airplanes, helicopters, and ground robots, as well as guided munitions. The company is involved in the Ukraine Aid Initiative, under which the U.S. has provided Ukraine with $65.9 billion in military assistance since February 24, 2022.

In the fiscal-2025 first quarter (ended July 27, 2024), the AeroVironment uncrewed systems segment saw a 22% year-over-year increase in sales to $120 million, partly driven by the growth of sales to Ukraine, according to Barron’s.

“We just recently completed our 475th delivery to Ukraine, and we anticipate booking additional orders as part of the recently announced Ukraine aid package,” AeroVironment President and CEO Wahid Nawabi told investors in September.

However, in the second quarter (ended October 26, 2024), the company’s CFO, Kevin McDonnell, reported that the uncrewed systems segment’s revenue dropped 36% year over year to $85.4 million, “primarily driven by a decrease in Ukraine revenue.”

When William Blair analyst Louie DiPalma asked about Ukraine’s contribution to AeroVironment’s business, Nawabi assured that the company has growth prospects “regardless of Ukraine, regardless of any specific one conflict in any part of the world.”

In a report published yesterday, DiPalma noted: “Ukraine is small potatoes compared with the $471 million in Switchblade-600 bookings over the past six months.” He rates AeroVironment to a “buy” but does not have a target price for the stock, Barron’s reports.

According to MarketWatch, out of the seven analysts covering AeroVironment, five have “buy” recommendations, while two rate it a “hold.” Their average target price of $223.75 per share suggests upside of more than 33% versus the last closing price.