AeroVironment backlog swells 65% to $1.2B as drone stocks diverge from fundamentals

AeroVironment's funded backlog swelled 65% to $1.2 billion after fiscal fourth-quarter revenue more than doubled to $641.6 million, beating estimates by 15%.

"The backlog growth confirms that counter-drone demand is accelerating faster than the market recognizes," said Sheila Kahyaoglu, aerospace and defense analyst at Jefferies, which rates AVAV a Buy and expects as much as $200 million in peak annual revenue from the company's Domestic Shield contract.

Adjusted earnings reached $1.84 a share, topping the $1.47 consensus by about 24%. Organic revenue, excluding the $282.3 million contributed by the BlueHalo and Empirical Systems acquisitions, rose 31%. Full-year bookings hit $2.7 billion, producing a book-to-bill ratio of 1.4 — meaning orders came in well ahead of what the company could ship.

The divergence between AVAV's stock — down 31% year to date at $176.84 — and its swelling backlog suggests the market has yet to price in the counter-drone ramp. CEO Wahid Nawabi said on the earnings call that the counter-UAS business, which generated about $200 million in revenue in fiscal 2026, could be two to three times larger within five years.

The company secured a $500 million U.S. Army contract for its Titan radio-frequency detect-and-defeat system, followed by an $80.5 million delivery order for the Titan MS variant under the Domestic Shield program. Titan products are already deployed in 17 countries, with 118 Titan 4 and 400 Titan SV systems delivered in the quarter. The company also tested its LOCUST directed-energy weapon aboard the USS George H.W. Bush, where it shot down drones with a 100% success rate.

Jefferies and BTIG both maintained Buy ratings on the stock after the award, with BTIG noting the contract could offer upside to the company's fiscal 2027 outlook as task orders follow. Of the 20 analysts covering AVAV, 17 rate it a Buy or higher, with the remaining three at Hold.

Fiscal 2027 revenue guidance of $2.125 billion to $2.225 billion implies about 10% growth at the midpoint — a step down from the acquisition-boosted pace but still healthy for a business of this size. Adjusted EPS guidance of $3.02 to $3.34 fell short of the $3.85 to $4.00 consensus, a gap the company attributed to rising depreciation and cloud amortization costs as it invests in new production capacity for Switchblade munitions, missiles, and laser systems ahead of expected orders.

The guidance miss was self-inflicted by capital spending, not fading demand. For investors watching the defense tech sector, the question is whether the stock's 31% year-to-date decline has already discounted the near-term earnings drag — or whether the backlog build will take longer to convert into reported profit than the market expects. The next catalyst is the fiscal first-quarter earnings report, where investors will look for further task orders under the Domestic Shield contract and updated margin trends in the counter-UAS segment.

This article is for informational purposes only and does not constitute investment advice.