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.
Drone Wars
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.
The Specialist
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.
Other Players
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.
Airplane Specialist
For investors who don’t want as much exposure to the military, The Boeing Company (NYSE:BA) is another company in the drone space. Only around 40% of the company’s business is tied to the military, with the rest coming from its effective duopoly in the commercial aircraft space.
While selling planes should remain a solid business for years to come as more and more people reach the middle class and can afford to travel, the value of drones can’t be underestimated. For example, the company’s Phantom Eye high-altitude drone is powered by liquid hydrogen, can fly for up to four days carrying 450 pounds, and can “relay information across its 400-nautical-mile line of sight horizon.”
The nature of The Boeing Company (NYSE:BA)’s business leads to somewhat lumpy sales. However, the launch of several new commercial aircraft led to a big top-line jump last year. Sales are likely to remain brisk, with earnings in the $5 per share range over the near term. That’s supported by a nearly $400 billion order backlog. There’s a lot to like here despite a recent run toward all-time highs; drones are just icing on the cake.
The Real Future
While drones have become a prominent part of the military, the real future is when drones become more integrated into civilian life. That’s starting to happen, with AeroVironment, Inc. (NASDAQ:AVAV) highlighting such uses as “monitoring pipeline and utility assets or finding those who are lost and in distress.” The technology has huge potential and there are plenty of different ways to get a piece of the action including a drone specialist, a military generalist, and a diversified plane maker.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends AeroVironment, Inc. (NASDAQ:AVAV). The Motley Fool owns shares of AeroVironment and Lockheed Martin Corporation (NYSE:LMT).
The article Unmanned Aircraft Growth Ahead originally appeared on Fool.com.
Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
