Last Update 18 Mar 26

Fair value Decreased 19%

AVAV: SCAR Recompetition And BlueHalo Integration Will Shape Future Defense Demand

AeroVironment’s analyst price target has been reset meaningfully lower, with the fair value estimate moving from about $382 to roughly $311 as analysts factor in SCAR program termination, contract timing shifts, questions around lower growth and lower margin BlueHalo assets, and updated revenue growth and P/E assumptions.

Analyst Commentary

Street research on AeroVironment has shifted meaningfully following the SCAR program developments and recent Q3 results, with most firms trimming valuation targets but generally keeping positive or neutral ratings. The debate now centers on how well the company can execute through contract changes, backlog quality questions, and the integration of BlueHalo assets.

Bullish Takeaways

Bullish analysts highlight a sizeable unfunded backlog of about US$3b at the end of Q3/26, even with roughly US$1.5b tied to SCAR, as support for multi year revenue visibility if management converts awards and manages contract timing effectively.
Several bullish analysts emphasize that Q3 issues were driven by timing in the Space and Cyber & Mission Systems businesses rather than a broad demand problem, and see future contract awards and award timing as key levers for getting results back on track.
Supportive research points to AeroVironment's exposure to drones, counter drone systems, and space as attractive growth areas, with JPMorgan suggesting the company is well positioned within Department of Defense efforts to expand its supplier base.
Some bullish analysts frame the repricing after SCAR headlines and Q3 disappointment as an opportunity for long term capital appreciation if AeroVironment can stabilize margins in BlueHalo, re establish momentum, and secure a share of any re competed SCAR awards.

Bearish Takeaways

Bearish analysts focus on the SCAR contract termination and re competition, viewing potential removal of US$1b to US$1.4b of backlog as a material hit to AeroVironment's largest program of record and a key source of uncertainty around FY26 and FY27 contributions.
Several cautious reports highlight concerns around BlueHalo's lower growth and margin dilutive profile, which could weigh on group level profitability and complicate the investment case if the integration does not deliver margin improvement over time.
Q3 results and reduced 2026 guidance are described as disappointing in more cautious research, with some analysts pointing to a non growing or contracting core backlog over the next few quarters and raising questions about execution on existing programs.
Neutral and bearish views also flag valuation risk, noting that consensus embeds optimistic margin and growth expectations and that AeroVironment faces headwinds from program changes, services heavy segments, and contract timing before clearer earnings traction emerges.

What's in the News

The U.S. Space Force is reopening the US$1.4b Satellite Communications Augmentation Resource program to build mobile ground stations, with an emphasis on firm fixed price contracts and a broader supplier base. This program had been AeroVironment's largest program of record (Space News / The Fly).
The U.S. Army deployed AeroVironment's LOCUST laser counter drone weapon system near El Paso International Airport, leading the FAA to halt air traffic for more than seven hours while officials assessed potential risks to commercial flights (Reuters).
The U.S. Department of Commerce withdrew plans to restrict Chinese made drones, with AeroVironment cited among the publicly traded U.S. drone companies in focus alongside Unusual Machines and Ondas (Reuters).
AeroVironment reported goodwill impairment of about US$151m for Q3 2026 and expects goodwill impairment of US$151m for the year ending April 30, 2026.
For fiscal 2026, AeroVironment now expects revenue between US$1.85b and US$1.95b, with a projected net loss in the range of US$218m to US$201m and loss per diluted share between US$4.44 and US$4.10.

Valuation Changes

Fair Value: $382.37 to $311.47, a meaningful reset lower in the analyst fair value estimate.
Discount Rate: 7.58% to 7.74%, a slight increase that implies a modestly higher required return in the model.
Revenue Growth: 30.73% to 20.52%, a substantial reduction in assumed future top line growth.
Net Profit Margin: 6.41% to 7.30%, a modest improvement in expected profitability as a share of revenue.
Future P/E: 145.64x to 113.54x, a lower valuation multiple applied to forecast earnings.

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Key Takeaways

Expansion into advanced defense technologies and international markets is driving sustained revenue growth, backlog visibility, and long-term earnings stability.
Modular, AI-powered platforms and recent acquisitions enable margin expansion, diversification, and operational leverage as defense demands accelerate.
Heavy reliance on U.S. defense contracts, intensifying competition, margin pressures from acquisitions, underdeveloped international markets, and rapid tech shifts threaten future growth and profitability.

Catalysts

About AeroVironment

Designs, develops, produces, delivers, and supports a portfolio of robotic systems and related services for government agencies and businesses in the United States and internationally.What are the underlying business or industry changes driving this perspective?

AeroVironment's recent contract wins and rapid expansion into advanced areas like space-based laser communications and directed energy weapons position the company to capitalize on the persistent global shift toward defense modernization, addressing urgent demands among the U.S. and allied militaries-likely supporting sustained top-line revenue growth and backlog visibility over multiple years.
The company's strategic focus on developing modular, interoperable, and software-defined platforms-including the newly launched AV Halo open software ecosystem-directly aligns with the accelerating adoption of AI-powered autonomy and network-centric warfare, enabling future premium pricing, increased service revenues, and gross margin expansion as these high-value platforms are deployed at scale.
Successful integration of the BlueHalo acquisition materially expands AeroVironment's addressable markets, diversifies its competitive portfolio, and enables operational leverage as the company increases manufacturing capacity, which should support bottom-line EBITDA and net margin improvement as production volumes ramp.
AeroVironment's growing list of large, multi-year government contracts (funded and unfunded backlog), as well as its positioning as a sole-source or leading provider in next-generation missile defense, Counter-UAS, and space comms, offers long-term revenue visibility and reduces downside risk associated with individual program delays-further enhancing future earnings stability.
Driven by rising geopolitical tensions, cross-border threats, and persistent ISR needs, AeroVironment is successfully expanding internationally through key partnerships and certifications, which should drive both revenue growth and higher-margin international sales beyond its historical domestic concentration, positively impacting both top-line and profit growth trajectories.

AeroVironment Earnings and Revenue Growth

AeroVironment Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming AeroVironment's revenue will grow by 47.0% annually over the next 3 years.
Analysts assume that profit margins will increase from 5.3% today to 10.1% in 3 years time.
Analysts expect earnings to reach $264.5 million (and earnings per share of $6.26) by about September 2028, up from $43.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $348.3 million in earnings, and the most bearish expecting $135.7 million.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 84.4x on those 2028 earnings, down from 263.2x today. This future PE is greater than the current PE for the US Aerospace & Defense industry at 34.4x.
Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 7.6%, as per the Simply Wall St company report.

AeroVironment Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

AeroVironment's substantial dependence on U.S. government and DoD contracts (with 78% of revenue domestic and only 22% international) makes it highly vulnerable to U.S. budget cycles, congressional delays, or shifting defense priorities, increasing the risk of revenue volatility if funding or priorities change.
Long-term competitive risks are amplified by the increasing number of entrants and established players in the UAS and Counter-UAS markets, raising the likelihood of price competition, margin compression, and potentially lower long-term net earnings on flagship products like Switchblade.
The company's gross margin profile has seen a significant decline post-BlueHalo acquisition (from 43% GAAP/45% adjusted to 21% GAAP/29% adjusted), driven by a higher services mix and costs associated with integration, which may persist or worsen, pressuring long-term net margins and profitability.
While AeroVironment highlights international opportunities, underinvestment or limited traction in expanding international sales and after-sales support could restrain revenue diversification and long-term growth, leaving the business exposed to regional policy changes or geopolitical headwinds.
Accelerating technological advances in AI, large-scale drone autonomy, and counter-UAS solutions pose a risk that AeroVironment's current platforms could be leapfrogged if R&D investment or innovation pace lags behind larger or more nimble competitors, threatening future contract wins and eroding revenue and margins over time.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $298.727 for AeroVironment based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $335.0, and the most bearish reporting a price target of just $225.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.6 billion, earnings will come to $264.5 million, and it would be trading on a PE ratio of 84.4x, assuming you use a discount rate of 7.6%.
Given the current share price of $230.99, the analyst price target of $298.73 is 22.7% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

AVAV: Expanding Defense Programs And New Contracts Will Shape Future Performance