Why AVAV Stock Stock Plunged 20% in Today’s Trading

AeroVironment AVAV -18.73% ▼ shares plunged on Monday after investment firm Raymond James downgraded the aerospace stock from Buy to Sell without a price target. The downgrade is due to worries about the company’s largest contract, the U.S. Space Force’s SCAR program, and its potential impact on future revenue. Indeed, five-star analyst Brian Gesuale explained that the program, valued at roughly $1.4 billion, is now under review and could either be divided among new vendors or paused altogether.

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As a result, a large portion of expected revenue is now uncertain. At the same time, Raymond James pointed out that backlog growth is slowing down and order trends are moderating. Since backlog represents future contracted work and is typically a key indicator of upcoming revenue, weaker backlog growth could put pressure on sales and earnings estimates in the near term.

It is also worth noting that the downgrade came during an otherwise strong period for defense stocks. In fact, companies such as Lockheed Martin LMT +2.42% ▲ and Northrop Grumman NOC +4.45% ▲ have been rising as markets react to increased military activity in the Middle East. Interestingly, prior to the downgrade, AeroVironment was also benefiting from that momentum.

Is AVAV Stock a Good Buy?

Overall, analysts have a Strong Buy consensus rating on AVAV stock based on 13 Buys, one Hold, and one Sell assigned in the past three months, as indicated by the graphic below. Furthermore, the average AVAV price target of $377.92 per share implies 84.6% upside potential.

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