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Bear Of The Day: AeroVironment (AVAV)

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AeroVironment (AVAV) is a Zacks Rank #5 (Strong Sell) after missing the bottom line estimate just the other week.  Since the earnings miss, the stock has been all over the place.  Let’s look at why this stock is a Zacks Rank #5 (Strong Sell) in this Bear of the Day article.

Description

AeroVironment, Inc. designs, develops, produces, delivers, and supports a portfolio of robotic systems and related services for government agencies and businesses. It operates in two segments, Unmanned Aircraft Systems (UAS) and Medium Unmanned Aircraft Systems (MUAS). The company supplies UAS, tactical missile systems, and related services primarily to organizations within the U.S. Department of Defense and to international allied governments. Further, it develops high-altitude pseudo-satellite UAS systems. The company was incorporated in 1971 and is headquartered in Arlington, Virginia.

Earnings History

When I look at a stock, the first thing I do is look to see if the company is beating the number.  This tells me right away where the market’s expectations have been for the company and how management has communicated to the market.  A stock that consistently beats has management communicating expectations to Wall Street that can be achieved.  That is what you want to see.

In the case of AVAV, I see two beats and two misses of the  Zacks Consensus Estimate.   This alone does not make the stock a Zacks Rank #1 (Strong Buy) and it doesn’t make it a Zacks Rank #5 (Strong Sell) either.

The Zacks Rank does care about the earnings history, but it is much more heavily influenced by the movement of earnings estimates.

Earnings Estimates

The Zacks Rank tells us which stocks are seeing earnings estimates move higher or in this case lower.  For AVAV I see annual estimates moving lower.

The current year 2022 consensus number has dropped from $1.74 to $1.42 over the last 60 days.

The next year has dropped from $2.47 to $2.07 over the same time period.

Negative movement in earnings estimates like that is why this stock is a Zacks Rank #5 (Strong Sell).

It should be noted that a majority of stocks in the Zacks universe are seeing negative earnings estimate revisions.  That means that the stocks that are seeing small but negative earnings estimate revisions are falling to a Zacks Rank #5 (Strong Sell).


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