AeroVironment (AVAV): Share price cycles in bullish 'flag' formation

Posted Jul 2nd 2008 1:55PM by Larry Schutts
Filed under: Earnings Reports, Ford Motor (F), Lockheed Martin (LMT), Technical Analysis, Delta Air Lines (DAL), Stocks to Buy

AeroVironment (NASDAQ: AVAV) is engaged in the design, development and production of unmanned aircraft systems and electric energy technologies for various industries and governmental agencies. The company's small aircraft are used by U.S. Department of Defense customers to deliver real-time reconnaissance, surveillance, and target acquisition to tactical operating units. Its electrical products include recharge systems for industrial vehicle batteries and power processing test equipment. Ford Motor (NYSE: F) and Delta Air Lines (NYSE: DAL) are on the company's commercial customer list. Lockheed Martin (NYSE: LMT) is a major competitor.

The firm pleased investors last week, when it reported fiscal Q4 EPS of 30 cents and revenues of $64.3 million. Analysts had been expecting 27 cents and $59.3 billion. In discussing the successful quarter, the CEO pointed to strength in demand for unmanned aircraft and related support services. Management also guided FY09 revenues to about $258.9-$269.7 million, versus Street consensus of $259.44 million. Funded backlog at the end of Q4 was up 35% from the same point last year.

The stock popped on the news and then began defining a bullish "flag" consolidation pattern. Stocks often leave flags moving in the same direction they were traveling on entry. In this case, that would be to the upside.

Brokers recommend the shares with four "strong buys", one "buy" and four "holds". Analysts see a 22% average annual growth rate, through the next five years. The AVAV Price to Sales ratio (2.60), Price to Book ratio (3.30), Sales Growth rate (26.82%), Operating Margin (13.18%), Return on Assets (11.53%) and Return on Investment (13.90%) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 45% of the outstanding shares. Over the past 52 weeks, the stock has traded between $17.97 and $28.70. A stop-loss of $23.75 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com. He does not hold positions in any of the stocks mentioned above.

Tags: AeroVironment, AVAV, flag, fundamental analysis, FundamentalAnalysis, momentum, technical analysis, TechnicalAnalysis