By Davit Kirakosyan
AeroVironment (NASDAQ:AVAV) shares surged more than 10% today after Raymond James upgraded the company to Strong Buy from Outperform and raised its price target to $130.00 from $105.00.
According to the firm, consensus models have miscalculated across 3-vectors, resulting in a considerable deviation between actual outcomes and projections. Specifically, these models have (1) not fully recognized the recent momentum in orders, (2) underestimated the speed at which orders will translate into revenue, and (3) overestimated the adverse effects of supply chain limitations on product delivery.
The firm increased its Street high 2024 estimate by approximately $100 million to $705M in sales or around 21% above the Street and noted that this could still prove conservative.
The firm estimates bookings to grow over 55% year-over-year to approximately $690M, surpassing the 4-year average of $423M. "Alternatively Street models aren't showing adequate accelerated growth to reflect the order strength, and we believe current Street models reflect little to no orders in F4Q given that the revenue bogey sits below $600 million," added the firm.
The surge in order velocity has resulted in backlog increasing by over 80% since Q3 a year ago. Raymond James anticipated this figure to rise by 78% by the end of April FY. In the past, the company has consistently achieved over 2x backlog turns per year. "Under conservative assumptions this leads to revenue >$700 million (vs Street $580 million). At the same time, management has typically gone into the year with 47% backlog coverage of their initial FY guide; whereas the Street models assume 64% and our model assumes 50%+," added the firm.