Key Takeaways:
- AeroVironment shares fell 43% YTD despite record $2.7B in FY26 bookings
- Kratos trades at 80x forward earnings with 17 Buy ratings and zero Sells
- Red Cat revenue surged 849% YoY but burns $32M in cash per quarter
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AeroVironment leads drone stocks as FY2027 budget earmarks $74B for UAVs
AeroVironment shares fell 43% YTD to $147 despite record $2.7B in bookings, creating a disconnect ahead of the FY2027 defense budget cycle.
"The strongest financial performance in our history," CEO Wahid Nawabi said of fiscal 2026, which saw Q4 revenue surge 133% to $641.6 million and adjusted EPS of $1.84 beat the $1.47 consensus by 25%.
The FY2027 Department of War budget request earmarks $53.6 billion for drone dominance and counter-drone technologies, plus $20.6 billion for counter-unmanned systems — a 424% increase from the $3.9 billion enacted in FY2026. Secretary of War Pete Hegseth has signaled total allocations of up to $74 billion for unmanned aerial and surface vessel procurement.
Analysts remain broadly bullish on AVAV despite the selloff. Eighty-four percent rate the stock a Buy, with zero Sell ratings and a consensus price target of $245.38 — implying 67% upside from current levels. Canaccord lowered its target to $240 from $280 on July 10, while Citizens cut to $230 from $350. BTIG maintained a Buy with a $326 target on July 9, citing long-term growth and margin expansion.
The bull case rests on the Switchblade loitering-munitions franchise and the recently absorbed BlueHalo directed-energy business. Management guided FY27 revenue of $2.125 billion to $2.225 billion and non-GAAP EPS of $3.02 to $3.34. The company also set a FY30 organic growth target of 15% to 20%, aiming for $3.5 billion to $4 billion in revenue.
Risks remain. Gross margin compressed to 32% from 36% on acquisition amortization, and the company reported a GAAP net loss of $265.1 million driven by a $240.7 million goodwill impairment. The SCAR program termination stripped $1.5 billion from unfunded backlog and spawned securities litigation with a July 27 lead plaintiff deadline.
Kratos Defense & Security Solutions (KTOS) shares have fallen 41% year to date to around $47, after peaking near $130.72 in January. The jet-powered drone maker posted Q1 revenue of $371 million, up 22.6% year over year, with a 1.6x book-to-bill and backlog of $2.01 billion. All 17 analysts rate the stock Buy or Strong Buy, with a consensus target of $109.86. The risk: free cash flow is guided to negative $85 million to negative $105 million, and the forward P/E sits at roughly 80.
Red Cat Holdings (RCAT) is the speculative play. The Black Widow ISR drone won the Army's Short Range Reconnaissance program, and Q1 revenue of $15.47 million grew 849% year over year. All six analysts rate it Buy or Strong Buy with a $22 consensus target. The stock trades around $7.84, down 30% over the past month. Quarterly cash burn of $32 million and a diluted share count of 120.8 million demand careful position sizing.
The divergence between stock prices and operational momentum creates a setup where FY2027 procurement dollars — expected to begin flowing this fall — could act as a re-rating catalyst. The next AVAV and KTOS earnings reports will show whether book-to-bill trends hold above 1.4x.
This article is for informational purposes only and does not constitute investment advice.
