But even so, this leaves the stock trading for 34 times earnings. With most analysts saying that, even with strong Q3 results, Masco Corporation (NYSE:MAS) can only grow earnings at about 10% consistently over the next five years (according to S&P Capital IQ), 34 times free cash flow still looks like too high a price to pay, to me.
A wild card
Switching gears, from the field of building things to blowing things up, we turn to unmanned aerial vehicle maker AeroVironment, Inc. (NASDAQ:AVAV) — a company that’s had a pretty astounding run of good luck lately, racking up Pentagon defense contracts left and right, as the U.S. Army stocks up on the company’s new “Switchblade” flying bomb.
This morning, and for the second time in two weeks, analysts at The Benchmark Company reiterated their support for AeroVironment, Inc. (NASDAQ:AVAV) stock, raising their price target from $24 to $26 a share. Encouraged by a recent earnings report in which AV hit analyst targets and reaffirmed its guidance for this year, Benchmark explained in August that it thinks the company’s Switchblade product, for which “theater commanders [are demanding] more” units, will help to drive results going forward.
The Pentagon’s been quick to respond to its commanders’ on-the-ground requests, issuing a series of follow-on orders for more Switchblades. At last count, these orders now tally $52.5 million — 23% of the company’s annual revenues — for just the past six weeks. If orders keep coming in at the rate they have been, therefore, it’s entirely possible that AV will blow right past analysts’ consensus expectations for 14% long-term earnings growth.
So… does this make AeroVironment, Inc. (NASDAQ:AVAV) a buy?
It’s hard to say. On the one hand, AV looks likely to outperform expectations on Wall Street — and that could well give the stock a lift. On the other hand, though, such a lift may prove short-lived. With a stock priced at 110 times trailing earnings, and more than 34 times trailing free cash flow, it’s arguable that a lot of AeroVironment, Inc. (NASDAQ:AVAV)’s future Switchblade success is already being taken as a given by investors, and priced into the stock.
Long story short… much as I applaud AeroVironment, Inc. (NASDAQ:AVAV)’s business success, I’d still be leery of going long on the stock.
The article Tuesday’s Top Upgrades (and Downgrades) originally appeared on Fool.com and is written by Rich Smith.
Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends AeroVironment and Wells Fargo. The Motley Fool owns shares of AeroVironment, JPMorgan Chase & Co (NYSE:JPM)., and Wells Fargo. The Motley Fool has a disclosure policy.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
