During the October 6 episode of Mad Money, a caller asked about AEVEX Corp. (NYSE:AVEX) after starting a position based on the growth of defense drone technology, despite broader headwinds facing the sector. Jim Cramer focused on his reservations about the broader sector, as he said:
Look, you said the right thing and the defense sector is, it just doesn’t matter. I’m very troubled by the defense sector. It’s just another sector that had its day. That’s how I feel about it. And every time I look at it, I think, you know what, I’m looking at yesteryear, even though you would think given the state of the world, I’d be looking at tomorrow.
His broad skepticism contrasts with his August reaction, when AEVEX’s selloff left Cramer questioning what had gone wrong. He still saw strong demand, but the earnings report contained more than the revenue headline suggested.
AEVEX Expands Beyond Aerial Systems
AEVEX Corp. completed its acquisition of BlackSea Technologies on September 8, adding unmanned surface vessels to its aerial systems portfolio. The transaction expands the company’s ability to supply autonomous platforms across both air and maritime operations. Its existing business also reported substantial growth. Second-quarter revenue increased 99.5% to approximately $201.8 million, while net income reached $6.7 million, reversing an $11.8 million loss a year earlier. Adjusted EBITDA increased to $28.1 million from $3.6 million. Adding maritime capabilities broadens the business, but the acquisition’s financing raises a separate question: how much of that expansion will translate into growth for each existing share?
A June announcement provided another example of demand. The company secured a U.S. Air Force contract valued at $50 million for unmanned mission capabilities. Initial funding was $27 million, an important distinction from the contract’s total announced value.
Valuation shows AEVEX at approximately 24x forward earnings, compared with 41.8x for AeroVironment. That is a sizable discount to an established unmanned-systems peer, although differences in their business mix, acquisitions and earnings forecasts limit a simple comparison.
Backlog Has Fallen Despite Rapid Revenue Growth
AEVEX Corp.’s funded backlog declined by approximately $243.3 million during the first half to $259.8 million as of June 30. The company attributed the decline primarily to revenue recognized on its EUCOM AOR Deep Strike program and a shift toward shorter-cycle orders. It expected approximately 95.1% of that backlog to convert into revenue within 12 months.
Customer concentration adds another risk. Approximately 92.7% of the funded backlog related to the U.S. government, including government-funded work contracted through intermediaries. AEVEX mentioned that government disruptions can delay testing and staff deployment, reduce revenue or increase costs. Cash generation has also lagged reported profit. First-half operating cash flow was approximately $8.6 million, compared with consolidated net income of approximately $27.7 million. That gap deserves attention as the company grows and integrates its acquisition.
An IPO Changes the Ownership Comparison
As per Insider Monkey, there were 28 hedge fund holders in Q2 versus none in Q1. However, AEVEX Corp. completed its initial public offering in April, making Q2 its first quarter-end as a public company. Short interest stood at 7.99% of the float, showing meaningful bearish positioning. The IPO also does not tell the whole story of AEVEX’s share supply. In June, Cramer pointed to a subsequent offering that complicated the stock’s outlook, even while remaining positive about the underlying business.
Cramer’s objection was to defense stocks broadly. AEVEX’s own results show rapid growth and a return to quarterly profitability, but the smaller backlog and government dependence are concrete concerns. Replenishing orders and turning more earnings into cash would give investors stronger evidence to weigh against his sector-wide caution.
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