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AeroVironment shares soar on investment firm stake

NEW YORK (AP) -- AeroVironment Inc. shares jumped Wednesday on news that an investment firm bought a stake in the drone aircraft maker and thinks its stock is undervalued.

THE SPARK: Engaged Capital disclosed Tuesday that it owns a stake of about 5.1 percent in AeroVironment.

The investment firm also outlined ways it thinks that the company's share price could be boosted — like improved corporate governance, better financial disclosures, a strong capital structure and renewed focus on capital allocation.

THE BIG PICTURE: AeroVironment designs, develops, produces and supports an advanced portfolio of unmanned aircraft systems for the U.S. militarily and its allies. Its shares have slid over the past two years, losing about 34 percent of their value.

In June the Monrovia, Calif., company reported a $795,000 loss in its most recent quarter, which ended on April 30.

"We believe that AeroVironment's impressive product and technology portfolio, leading market position, varied and significant growth prospects and excellent balance sheet should command a higher valuation," Glenn Welling, Engaged Capital principal and chief investment officer, said in a statement.

Welling added that worries about excess cash in the company's capital structure, vague growth plans and the uncertainty surrounding its ties to the defense budget are all issues that can be addressed.

Engaged Capital said it's committed to working constructively with the company's management and board.

Responding to the comments from Engaged Capital, AeroVironment said in a statement, "We are confident that our strategy best positions AeroVironment to compete effectively and deliver superior returns."

THE SHARES: Up $2.56, or 12.4 percent, to $23.21 in afternoon trading, after peaking at $23.85. Over the past 52 weeks, the shares have traded between $16.98 and $25.04.