Key Points
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The U.S. Department of Defense is investing $70 billion in drone funding for fiscal year 2027.
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AeroVironment stock has plummeted 70% after the U.S. Space Force canceled a $1.7 billion contract.
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The contract was an important component of its BlueHalo acquisition, and losing it triggered a $240 million goodwill write-down.
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The U.S. Department of Defense is investing heavily in unmanned aerial systems and counter-drone technology, with over $70 billion in drone funding for fiscal year 2027.
Despite the massive spending, AeroVironment (NASDAQ: AVAV), which manufactures tactical drones, has seen its stock plummet 70% from its high. The narrative around the company changed earlier this year, when the U.S. Space Force issued a stop-work order on a $1.7 billion federal contract and later reopened the program to other suppliers.
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AeroVironment lost a crucial federal contract earlier this year
In 2025, AeroVironment closed an all-stock deal valued at about $4.1 billion to acquire BlueHalo. The move gave it a comprehensive portfolio across air, land, sea, and space, as well as a foothold in high-growth segments such as counter-unmanned aerial systems and electronic warfare.
The crown jewel of its acquisition was a $1.4 billion federal Satellite Communication Augmentation Resource (SCAR) contract awarded to BlueHalo in 2022, which eventually grew to $1.7 billion. As part of this, BlueHalo would build phased-array ground terminals to modernize the U.S. Space Force’s gaining satellite control network.
When it made the acquisition, AeroVironment management called it a “tremendous growth opportunity.” The move gave the company an immediate space-based revenue stream to go with its drone and loitering munitions portfolio.
However, that all fell apart in January when the U.S. Space Force issued a stop-work order, allowing both parties to negotiate a transition to a firm-fixed-price contract. The Space Force eventually abandoned the single-vendor strategy in favor of an open competition and reopened the program to other suppliers in March.
The company had to write down its space division as a result
AeroVironment paid a premium for BlueHalo largely because of the projected long-term cash flow from its massive federal contract, only to have that value wiped out overnight. As a result, the company recorded a non-cash goodwill impairment charge of $151 million against its space division. In June, the company announced it had miscalculated goodwill and wrote down the division by another $89 million.
What’s next for AeroVironment?
Before the news, AeroVironment traded at a premium valuation of 135 times forward earnings. Since then, the market has stripped away much of that premium, and the stock now trades at around 38 times forward earnings, above the defense sector median of 32.5 times.
AVAV PE Ratio (Forward) data by YCharts
The loss of the SCAR contract, coupled with the impairment and subsequent restatement, raises questions for management. For AeroVironment, this deal isn’t fixable, as the U.S. Space Force has already exercised its right to cancel the agreement, and the write-down is on the books.
That said, AeroVironment’s core business is strong, with demand for Switchblade loitering munitions, Puma unmanned systems, and BlueHalo’s Titan counter-drone hardware.
During its July investor day, management reaffirmed the company’s $3.5 billion to $4 billion revenue target by 2030, representing annualized growth of 15% to 20%, despite the loss of the contract. After its 70% decline, AeroVironment is more attractively valued, but the company will face heavy scrutiny over whether management can deliver on its long-term targets.
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Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AeroVironment. The Motley Fool has a disclosure policy.
