AeroVironment Earns Its Wings

From one perspective, I suppose you could say AeroVironment (NAS: AVAV) had only a so-so quarter in its first fiscal quarter of 2012. Earnings per share of $0.01 matched estimates, but no more than that. And with management only maintaining its profits estimate for the rest of this fiscal year (albeit at a healthy $1.28 to $1.35 per-share level), there was no upside surprise to guidance, either. Investors seemed to expect more of the stock, and sold it off by 6% on the news.

But me? I'm just as pleased as can be.

Continuing the string of positive non-earnings-related press releases it began last month, AV confirmed this week that it has won yet another contract from the military. Previously, we've seen the company book a contract for its Switchblade UAV and announce the availability for sale of its new Shrike "vertical takeoff and landing" Shrike UAV as well. Now, the company is touting the continued health of its Raven UAV franchise -- recipient of a $16 million order from the U.S. Army.

Last quarter, AV grew its revenues 62% in comparison with fiscal Q1 2011 -- a trend that contrasts starkly with the single-digit sales growth Lockheed Martin (NYS: LMT) and Boeing (NYS: BA) are experiencing, and the flatlined growth at Textron (NYS: TXT) . Contracts like the ones AV is booking are just what the company needs to keep the growth going. (Speaking of which, investors who were dismayed to see AV's "funded backlog" number drop sequentially in Q1 2012 will we reassured to learn that AV made up the difference, and then some, with this latest U.S. Army order.)

Best of all, I like to see how AV is turning down the flames on the cash burn. I admit to having had concerns over the $7.1 million in negative free cash flow AV reported one year ago. But AV's most recent numbers show FCF once again approximating net income.

Valuation
With $29.3 million in free cash to its credit over the past 12 months, AV finally looks buy-able to me again. At 24 times earnings or 24 times FCF (take your pick), the stock is attractively priced relative to 28.5% long-term growth expectations. Back out AV's cash stash, and the picture's even prettier -- AV carries an enterprise value-to-free cash flow ratio of just 14.3.

Long story short, I'm ready to go long AeroVironment again.

Want to learn more about this maker of unmanned aerial vehicles and ... car-battery fast-chargers?Add it to your Fool Watchlist.

At the time thisarticle was published Fool contributorRich Smithdoes not own (or short) shares of any company named above. Per the Motley Fool's ironcladdisclosure policy, he cannot buy or sell shares of AeroVironment (or any other company named above) for at least three days.The Motley Fool owns shares of Lockheed Martin and Textron.Motley Fool newsletter serviceshave recommended buying shares of AeroVironment. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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