Why AeroVironment Stock Is Down 10% Today

On a generally good Monday for the stock market, AeroVironment (NASDAQ: AVAV) was a notable exception. The specialist defense company saw its share price fall by almost 10% on the day due to a work stoppage on a highly lucrative arrangement between the company and the US government. By contrast, the S&P 500 the index, largely free of such charges, rose 0.1% on the day.

Dispute with drones

AeroVironment, which focuses on developing and manufacturing combat drones such as the popular Switchblade, revealed in a regulatory filing that a protest has been filed with the US government against the Army’s current Switchblade contract with the company. Following this action, the Army issued an order to stop work on the contract.

The protest, filed with the federal Government Accountability Office (GAO), is currently being considered by that organization. The company expects the GAO to make a decision on the matter by December 16.

In late August, the Army awarded AeroVironment an indefinite-term, indefinite-quantity supply contract for the Switchblade systems. The contract, whose completion date is August 26, 2029, has a cap value of $990 million.

The company was at pains to add that the Army’s stop-work order has no impact on its other businesses.

Hoping the shutdown will stop

The reason for the protest is not yet clear. Because the contract was sole-sourced — that is, AeroVironment was determined to be the only entity capable of meeting its requirements — the protesting party may feel that another defense contractor (or contractors) is capable of performing the work.

Regardless, this is at least a hiccup in a highly critical and highly profitable business for AeroVironment. Hopefully for the company and its shareholders, this will be resolved soon in their favor.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AeroVironment. The Motley Fool has a disclosure policy.

Why AeroVironment Stock Is Down 10% Today was originally published by The Motley Fool