Shares of defense technology contractor AeroVironment experienced a sharp sell-off as investors reacted to a dual setback: a significant earnings miss and the announcement of a temporary halt on a key U.S. government contract. The combination of operational challenges following a major acquisition and this contract interruption triggered a broad repositioning by shareholders, raising questions about the near-term outlook.
Earnings Disappointment Amid Record Sales
The company’s fiscal second-quarter report presented a mixed picture. While it posted record revenue, it fell short of profit expectations. Earnings per share came in at $0.44, notably below the consensus estimate of $0.79. A primary contributor to the strong top-line performance was the recent acquisition of BlueHalo, which added $245.1 million to quarterly revenue. Excluding this contribution, the firm’s legacy business still demonstrated robust growth of 21%, reaching $227.4 million.
However, profitability was pressured. Integration costs related to the BlueHalo purchase, a less favorable product mix, and other acquisition-related effects sequentially reduced the adjusted gross margin from 29.1% to 27.2%. This margin compression was a key factor in the earnings miss.
Government Contract Pause Adds Uncertainty
Concurrently, AeroVironment disclosed a stop-work order, effective January 16, 2026, concerning the delivery of BADGER phased-array antennas for the SCAR program. The company is currently in negotiations with the U.S. government to modify the contract, with discussions reportedly centered on shifting to a firm-fixed-price structure. Management emphasized its commitment to continuing work on the project.
In the short term, this development is a tangible operational headwind. It has the potential to delay delivery schedules and associated cash flows, while also creating uncertainty over future profitability should the contract terms be revised.
Should investors sell immediately? Or is it worth buying AeroVironment?
Market Reaction and Analyst Perspective
The stock closed at $321.00, reflecting a decline of approximately 15.9% over the preceding seven trading days. Despite this recent pressure, the share price remains up about 25.3% year-to-date. Market observers noted that the pullback also materialized a technical correction from what had been considered an overbought condition, with the Relative Strength Index (RSI) previously elevated.
The broader analyst consensus remains largely positive. Average price targets continue to range between approximately $375.41 and $395.50, though recent volatility has increased. Investors also noted recent insider transactions, involving the sale of roughly 3,223 shares for a total value of about $1.09 million.
Looking Ahead: Key Metrics and Catalysts
Despite the quarterly challenges, AeroVironment’s confirmed funded backlog of $1.1 billion (as of November 1, 2025) and its reaffirmed revenue guidance for fiscal year 2026—projected between $1.95 billion and $2.0 billion—provide a degree of forward visibility.
The next significant milestone for investors will be the fiscal third-quarter earnings report, expected around March 3, 2026. This update will be scrutinized for crucial details on margin trends, the progress of the BlueHalo integration, and the status of negotiations surrounding the SCAR program contract.
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