An Electrifying Quarter from this High Flyer

Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Shares of AeroVironment (NASDAQ: AVAV) took off after the company reported second quarter earnings.  The double digit spike was fueled by the company’s strong performance which included a 30% jump in earnings.  The company noted that third quarter revenue will be light due to contracting delays, but it’ll more than make up it in the fourth quarter. 

In the second quarter, revenue of $80.3 million was down $0.1 million from the previous year.  The company saw a $1.5 million decrease in Unmanned Aircraft Systems revenue that was almost entirely offset by a $1.4 million gain in Efficient Energy Systems sales.  Income from operations jumped 37%, while earnings clocked in at $0.39 a share. 

Looking forward the company expects full year revenue to come in between $348 million and $370 million with earnings of $1.41 to $1.51 a share.  Management also sees significant progress on development programs in the quarter to drive long term success as the company grows in both adjacent and new markets. 

Aerovironment is a really interesting long term story.  While its defense business is coming under pressure from looming budget cuts, the company’s products are growing in importance.  Where things get exciting is in AV’s energy solutions business.  The division is making the dream of the electric car come true by supplying the recharging stations needed to keep the cars humming.

AV is the clear market leader in North America for electric vehicle infrastructure.  However, the adoption by consumers has been much slower than many expected.  Plug-in electric vehicles are still in the early adopter stage where even small market penetration could yield a multi-billion dollar market opportunity for AV.

On the conference call CEO Timothy Conver stated that:

“Even a 5% penetration rate of the estimated 13 million new cars sold in the U.S. during 2011 would represent 650,000 new electric vehicles per year, requiring a mix of Level 1, Level 2 and Level 3 charging infrastructure. The same rate applied to a global auto market of 60 million vehicles would yield 3 million electric vehicles. We are well positioned to serve and to benefit from the potential billion-dollar market opportunity that can be created by even single-digit electric vehicle adoption rates.”

That of course, brings up the question of how likely is even a single digit adoption rate.  It just might be more likely than you think.  The problem with the electric car has always been one of the classic “chicken and the egg” dilemmas.  We need the car, but we also need the refueling infrastructure.  While AV is working diligently on the refueling infrastructure, car makers like Tesla (NASDAQ: TSLA) are out there making cars that are changing the game. 

Not just any car, but Tesla’s Model S just won the prestigious Motor Trend Car of the Year.  Sure, it’s near $60,000 price tag isn’t for the average consumer; the key though is that it is price comparable to luxury models in its own category.  While the car is a real stunning breakthrough in its class, the mass market opportunities are limited.

Cost will continue to be the key driver of adoption.  Both GM’s (NYSE: GM) Chevy Volt and Ford’s (NYSE: F) Focus are aimed at this market but sales continue to be microscopic.  While the industry estimates sales will triple this year, that’s still just 50,000 cars.  The Volt has sold about 21,000 of those cars through November, but sales fell that month to just 1,500 cars.  Meanwhile, Ford sold 179 Focus EVs in November which was its best month to date.  The company’s new C-Max Energi posted an excellent first month selling 1,259 vehicles.  Both automakers have a long way to go before achieving mass market and financial success, but both are headed in the right direction.

The future of the electric car will be driven by the innovative solutions delivered by automakers and recharged by solutions provided by AeroVironment.  The company is a leader in the space and its continued adoption has the potential to keep electrifying results. 

At 17 times earnings AV isn’t cheap.  Especially when coupled with a defense business that is being pressured by budget cuts.  That is unless you begin to consider the multi-billion dollar market opportunity in electric vehicle solutions.  This is one reason I’m invested into a company whose future is now.   


latimerburned owns shares of AeroVironment and an options position on Ford. The Motley Fool owns shares of Ford and Tesla Motors. Motley Fool newsletter services recommend AeroVironment, Ford, General Motors Company, and Tesla Motors . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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