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Bear of the Day: AeroVironment (AVAV)

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Earnings estimates have fallen sharply for AeroVironment ( AVAV ) after the company delivered disappointing first quarter results on September 1. The drop in consensus estimates was large enough to send the stock to a Zacks Rank #5 (Strong Sell), placing it in the bottom 5% of all stocks that Zacks ranks.

While shares are trading near their 52-week lows, the stock does not look cheap at 120x forward earnings.

AeroVironment designs and manufactures Unmanned Aircraft Systems (i.e. drones) for military, public safety and commercial activities around the world. It also develops Efficient Energy Systems for electric transportation solutions.

Approximately 85% of sales come from its Unmanned Aircraft Systems segment with the remainder coming from its Efficient Energy Solutions segment.

First Quarter Results

AeroVironment reported disappointing first quarter results on September 1. Adjusted earnings per share came in at -$0.24, below the Zacks Consensus Estimate of -$0.18. The company also burnt through more than $11 million in operating cash flow in the quarter.

Total revenue fell 9% to $47.1 million, missing the consensus of $56.0 million. Revenue declined in both segments. Unmanned Aircraft Systems saw a 2% decline in revenue while revenue in its Efficient Energy Systems segment fell 36%.

Despite the drop in revenue, selling, general and administrative expenses climbed 14%. And research and development costs jumped 38%. These factors led to a 40% plunge in operating income to -$9.1 million.

Estimates Falling

Following disappointing first quarter results, analysts revised their earnings estimates significantly lower for the remainder of the year. This was sharp enough to send the stock to a Zacks Rank #5 (Strong Sell), placing it in the bottom 5% of all stocks that Zacks ranks based on earnings momentum.

The current Zacks Consensus Estimate for 2016 is just $0.03, down from $0.31 ninety days ago. The 2017 consensus is now $0.36, down from $0.54 over the same period.

Lofty Valuation

Shares of AeroVironment are trading near their 52-week lows, but they do not look like a bargain. The stock trades at 120x 12-month forward earnings and sports an enterprise value to EBIT ratio of 197.

Its Zacks Value Style Score is 'F'.

The Bottom Line

With falling earnings estimates and premium valuation, investors should consider avoiding shares of AeroVironment for now.

Todd Bunton, CFA is a Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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