Since the onset of the COVID-19 pandemic, the aerospace industry has been under tremendous pressure owing to pandemic-related travel restrictions. Travel has been down considerably over the past two years, and the industry is failing to rebound to pre-virus levels due to the re-emergence of COVID-19 variants. A prolonged tightening of commodity supplies and skyrocketing oil and gas prices are further affecting the performance of the aerospace industry.
The latest resurgence of COVID-19 in the U.S. and other countries could mar the recovery of the aerospace industry. Over the last two years, most aerospace companies have incurred huge losses. Furthermore, due to their deteriorating fundamentals and bleak growth potential, aerospace stocks are expected to remain under pressure in the near term.
Given this backdrop, Wall Street analysts expect fundamentally weak aerospace stocks AeroVironment, Inc. (AVAV) and Vertical Aerospace Ltd. (EVTL) to witness a downside in the near term.
AeroVironment, Inc. (AVAV)
AVAV in Monrovia, Calif., designs, develops, produces, and delivers a portfolio of robotic systems and related services for government agencies and businesses. The company operates through two segments: Unmanned Aircraft Systems (UAS) and Medium Unmanned Aircraft Systems (MUAS). It supplies UAS products, tactical missile systems, and related services and manufactures aerial and aircraft systems.
In its fiscal year 2022 third quarter, ended Jan. 29, 2022, AVAV's cost of sales increased 36.9% year-over-year to $68.66 million. The company's loss from operations grew by 2,100.3% from the year-ago value to $14.13 million. Its income before income taxes came in at $15.60 million, registering a 2,567% decline from the prior-year period. AVAV's net loss amounted to $35,000 for the third quarter.
The $134.16 million consensus revenue estimate for its fiscal 2022 fourth quarter, ending April 30, 2022, represents a marginal year-over-year decline from the same period in 2021. The $0.40 consensus EPS estimate for the current quarter represents a 61.4% year-over-year decline from the prior-year period. AVAV has missed the consensus revenue estimates in three of the trailing four quarters.
The stock decreased marginally over the past year and closed yesterday's trading session at $100.45. The 12-month median price target of $85.25 indicates a 15.1% downside. The price targets range from a low of $66.00 to a high of $95.00.
AVAV's POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
AVAV has a D grade for Value, Growth, Stability, and Sentiment. Within the Air/Defense Services industry, it is ranked #67 of 75 stocks.
To see AVAV's POWR Ratings for Quality and Momentum, click here.
Vertical Aerospace Ltd. (EVTL)
Headquartered in London, ENTL is an aerospace and technology company that pioneers zero-emissions aviation. The company designs, manufactures and services electric aircraft. It provides VX4, a piloted electric vertical take-off, and a landing vehicle. ENVL offers and markets airlines, aircraft lessors, and helicopter operators.
On February 8, EVTL and Leonardo agreed to a joint development program to design, test, manufacture, and supply the fuselage for the VX4 electric aircraft. The collaboration is initially for six certification aircraft, but it might scale to mass production of 2,000 VX4s per year. This initiative is expected to take some time to realize gains for the company.
Last October, EVTL announced $205 million in additional funding. Mudrick Capital Management, LP, a global investment firm, invested $200 million through convertible senior secured notes, and Kouros SA invested $5 million in Vertical's PIPE. This financing might increase the company's debt burden.
Analysts expect EVTL's loss per share to amount to $0.59 for its fiscal year 2022, ending Dec. 31, 2022, representing a 67.9% increase from the prior year.
Shares of EVTL declined 28.5% in price over the past six months and 28.5% over the past year. It closed yesterday's trading session at $7.64. The average price target of $5.63 indicates a 26.3% potential downside from its last closing price of $7.64 per share.
EVTL's POWR Ratings reflect its poor prospects. The company has an overall D rating, which translates to Sell in our proprietary rating system. EVTL has an F grade for Quality and Value. It is ranked #64 of 75 stocks in the Air/Defense Services industry.
To see additional POWR Ratings (Sentiment, Growth, Momentum, and Stability) for EVTL, click here.
AVAV shares were trading at $94.58 per share on Thursday afternoon, down $5.87 (-5.84%). Year-to-date, AVAV has gained 52.47%, versus a -6.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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