The reason AeroVironment's share price rebounded today.
AeroVironment's (AVAV -1.06%) stock took a dip of around 2% on Tuesday after the company announced plans for a $4.1 billion acquisition within the defense sector. The stock is seeing a slight recovery from those losses on Wednesday, as investors reconsider their initial reservations regarding the deal.
As of 12:55 p.m. ET, the stock has shown a 3% increase.
AeroVironment's Major Move
AeroVironment's stock has outperformed the S&P 500 by 49% over the past year, currently holding a market cap of $5.5 billion. Here's the twist: The company AeroVironment is purchasing costs almost as much.
AeroVironment plans to pay $4.1 billion in stock to acquire BlueHalo, a five-year-old defense company privately-owned by equity firms. BlueHalo specializes in advanced technology areas such as "Space Technologies, Counter-Uncrewed Aircraft Systems (cUAS), Directed Energy, Electronic Warfare, Cyber, Artificial Intelligence, and Uncrewed Underwater Vehicles (UUVs)".
AeroVironment considers these technologies as complementary to its own expertise in military drones. They anticipate that merging the two defense companies will foster 'agile innovation' and deliver 'next-generation, comprehensive solutions' that will 'redefine the future of defense'.
Does the Deal Hold Up?
While the deal's future remains uncertain, investors voiced their concerns over the price AeroVironment is paying on Tuesday. However, by Wednesday, they seemed to be coming around to the idea. But is $4.1 billion too much for BlueHalo?
It's a question of perspective. While younger than AeroVironment's 53 years, BlueHalo is arguably a more successful company. BlueHalo anticipates generating over $900 million in revenue this year, compared to AeroVironment's trailing revenue of $754 million. In terms of valuation, AeroVironment is paying approximately 4.6 times 2024 sales for BlueHalo, which is less than its own valuation of 7.3 times sales.
Looked at from this angle, AeroVironment might be getting a good deal after all. The only positive I can offer about the deal is that, while AeroVironment's stock is expensive for a defense contractor, the price it's paying for BlueHalo is slightly less extreme.
Investors are closely watching AeroVironment's decision to invest a significant amount of money, around $4.1 billion, into the acquisition of defense sector company BlueHalo. Considering the company's anticipated revenue of over $900 million this year, some analysts argue that this investment could be a valuable finance move for AeroVironment.
