A positive earnings surprise typically generates robust upside sentiment and defense contractor AeroVironment (AVAV) – which specializes in unmanned aerial vehicles – was no exception. After posting $13.9 million in net income for its fiscal third quarter, AVAV stock saw its value soar in aftermarket trading on Monday.
It was a pleasant picture of contrast. In the year-ago quarter, AeroVironment suffered a loss. This time around, on a per-share basis, the Virginia-based enterprise stated that it generated a profit of 50 cents. Earnings, when adjusted for non-recurring costs, landed at 63 cents per share, according to Barchart content partner AP.
Notably, the results beat Wall Street’s expectations, which called for earnings per share of 32 cents. On the top line, AeroVironment generated revenue of $186.6 million, which also beat analysts’ consensus target. The estimate sat at a much more modest $168.7 million.
Looking ahead, AeroVironment expects full-year earnings to land in a range between $2.69 to $2.83 per share. Further, revenue should hit $700 million to $710 million. The updated guidance also boosted sentiment for AVAV stock. Currently, analysts anticipate current year EPS to land at $2.73 and sales to reach $700.83 million.
As encouraging as the latest earnings print, was, however, the real narrative for AVAV stock almost certainly centers on Russia’s brazen invasion of Ukraine. With the military conflict having entered its third year, there appears no sign of imminent peace. Crafting an image as a political strongman, Russian President Vladimir Putin probably cannot back down without showing fear – a death sentence for such a regime.
On the other hand, the Ukrainians also have little reason to surrender. Since Russia has repeatedly violated ceasefires and treaties, per The Hill’s Mark Temnycky, the Ukrainians have little reason to believe that Russia will start honoring international obligations now.
Undeniably, it’s a terrible situation – and purely on a cynical basis, this framework will probably fuel AVAV stock for the long term.
Unusual Options Activity Highlights Upside Prospects for AVAV Stock
Following the close of the March 4 session, AVAV stock ranked among the top highlights in Barchart’s screener for unusual stock options volume. Specifically, total volume reached 9,917 contracts against an open interest reading of 112,386 contracts. Notably, the magnitude difference between Monday’s volume and the trailing one-month average metric came out to 813.17%.
Breaking down the options split, call volume reached 5,542 contracts while put volume landed at 4,375. This pairing yielded a put/call volume ratio of 0.79, on paper moderately favoring the bulls. However, with the earnings snapshot coming out after the closing bell on Monday, it’s possible that the demand profile for AVAV stock could shift firmly to the bullish side of the spectrum.
Nevertheless, it’s instructive that among put options expiring in 100 days or more within Barchart’s screener for unusual options activity, two contracts stood out for their unusual activity based on their relationship between volume and open interest:
- 37 contracts bought of the AVAV JUL 19 ’24 100.00 Put against open interest of 45 contracts.
- 252 contracts bought of the AVAV JUL 19 ’24 110.00 Put against open interest of 45 contracts.
While it’s difficult to say with absolute certainty given the lack of information with options ownership data, these puts may be a form of “volatility insurance.” Over the past year ending on Monday’s close, AVAV stock gained more than 49%. Therefore, the puts could be a way of protecting their profits. After all, the fundamentals of a protracted Ukraine conflict have long been known to defense market observers.
On the flipside, among longer-expiry call options, another two contracts stood out:
- 20 contracts bought of the AVAV SEP 20 ’24 135.00 Call against open interest of 9 contracts.
- 25 contracts bought of the AVAV SEP 20 ’24 150.00 Call against open interest of 6 contracts.
These call options catch the eye because they’re realistic targets. According to Wall Street analysts, the mean price target for AVAV stock clocks in at $143.40, with the high-side target standing at $155. That’s roughly within the range of the aforementioned calls.
Also, there appears to be strong demand for near-expiry out-the-money (OTM) calls, such as the AVAV MAR 15 ’24 160.00 Call, which saw volume rise to 263 contracts on Monday against open interest of only 49 contracts.
With the aforementioned conflict likely to draw more demand for AeroVironment’s unmanned aerial weapons systems, AVAV stock is a hot commodity that’s probably only going to get hotter.
A Wildcard in the U.S. Political Landscape
One wildcard in the narrative for AVAV stock, though, is the U.S. presidential election cycle, specifically former President Donald Trump. With an expressed foreign policy that’s not exactly Ukraine-friendly and with cryptic ties to Russia, a Trump victory in 2024 could lead to unpredictable dynamics in the conflict. Subsequently, AVAV stock would be difficult to predict.
Notably, options pricing only goes up to the Sept. 20, 2024 expiration date. That’s quite appropriate for AVAV stock. For the time being, the Democrats will likely do whatever they can to push for Ukraine military aid, which in turn bolsters the bullish case for AeroVironment. However, from November onward is a giant mystery.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
