One of the biggest outcomes of the wars subsequent to the September 11th terrorist attacks has been the increased military use of unmanned aircraft. While the use of “drones” has been contentious at times, there is no denying that the technology helps keep human beings out of harms way. Here are a few ways to play the space, including a drone specialist.
While the idea of an unmanned aircraft swooping down and either shooting at or launching a missile at unsuspecting combatants would have seemed like science fiction not too long ago, it is real world technology today. However, the abilities of drones go far beyond such combat roles.
For example, industry specialist AeroVironment, Inc. (NASDAQ:AVAV) recently won a third order from the U.S. Army for its Raven drones. The device weighs less than five pounds and is launched by hand. It provides real-time images with a visual range of up to 10 kilometers in color or infrared.
What is perhaps even more amazing is that the Raven is huge compared to AeroVironment, Inc. (NASDAQ:AVAV)’s Hummingbird drone. The Hummingbird is, quite literally, the size of a small bird, provides video, and can hover. Although it isn’t quite ready for market, it shows the capabilities that AeroVironment, Inc. (NASDAQ:AVAV) has in the drone space.
While the company does more than make drones, this technology is core to what AeroVironment, Inc. (NASDAQ:AVAV) does. It is small, with a market cap of around $440 million, but its top line has grown steadily over the past decade. Over 80% of the company’s sales come from the U.S. government either directly or indirectly. Earnings have been variable, but the company is solidly profitable, with earnings falling just under a dollar only once in the last five years.
With the trend toward budget cuts in the military space, it wouldn’t be surprising to see the top line fall slightly. However, drone technology is going to be increasingly important as we move toward a leaner military. This is one area where the government is going to continue to spend and AeroVironment, Inc. (NASDAQ:AVAV) is an industry leader.
While AeroVironment, Inc. (NASDAQ:AVAV) is a small, focused player in the drone space, it isn’t the only industry participant. For example, Lockheed Martin Corporation (NYSE:LMT) also has impressive drone capabilities. A good example is the K-MAX helicopter. In conjunction with Kaman Aerospace, the company has created an unmanned drone capable of delivering up to 6,000 pounds of battlefield cargo.
Having this capability means that troops’ supplies can be replenished from the air without the need to send a caravan to the battlefield. It keeps all of the troops that would be needed to drive and protect supplies out of harms way. It isn’t hard to imagine such a drone delivering building supplies or food to remote areas in a civilian capacity.
Lockheed Martin Corporation (NYSE:LMT) is one of the most diversified military contractors in the world, has seen sales trend generally higher for a decade, and has a long history of annual dividend increases. Despite a notable price advance this year, the shares still yield over 4%. This is a good option for investors looking for drone exposure in a diversified package.