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Drone Market Positive For AeroVironment, Not GoPro, Piper Says

The commercial drone industry is taking off and is likely to get a big lift once the Federal Aviation Administration completes its regulations for small unmanned aerial systems by late spring, Piper Jaffray said in a research report Monday. The buzz was positive at the Xponential 2016 conference, sponsored by the Association for Unmanned Vehicle Systems International and held May 2-5 in New Orleans, Piper Jaffray analyst Troy Jensen said. The annual event is the largest drone trade show in North America. “Following conversations with the leading companies in the space, our biggest takeaway was demand for drone hardware, software and services continues to inflect, as more and more companies are realizing the value this still-emerging technology can add,” Jensen said. “We were also very encouraged to hear most in the industry are confident the FAA will release the long-awaited small UAS ruling by ‘late spring.’ “That said, we continue to believe we are in the early innings of a multibillion-dollar market opportunity, and expect the industry to see a bigger inflection once favorable regulation is put in place.” Historically, the Xponential trade show has focused on military applications for drones, but the fast-growing commercial drone industry has shifted the focus of the show to enterprise applications. Companies at the show included Aerialtronics, AeroVironment ( AVAV ), Aeryon Labs, Agribotix, AirRobot, Airware, DJI, DraganFly Innovations, Kespry, MicaSense, PrecisionHawk and Pulse Aerospace. Of those, only AeroVironment of Monrovia, Calif., is publicly traded. Jensen rates AeroVironment stock overweight, with a price target of 36. AeroVironment stock fell 1.3% to 28.11 on the stock market today . “Although revenue levels for most drone companies remain sub-$10 million on an annual basis, we were told by more than one company they have recorded more revenues in Q1 than they did in all of 2015,” Jensen said. 2.7 Million Commercial Drones Expected By 2020 The FAA estimates that annual sales of drones for commercial purposes will grow from 600,000 in 2016 to 2.7 million by 2020, he said. Amazon.com ( AMZN ) is among companies experimenting with using drones for delivering products to customers, but many hurdles remain and it’s too early to say when this might become a reality. The FAA’s small UAS regulations are expected to allow drones weighing under 55 pounds to fly commercially without having to file for certain exemptions. The rules should make it easier and faster for businesses to fly drones for most applications, Jensen said. Meanwhile, the FAA predicts that sales of consumer drones for hobbyists will grow from 1.9 million in 2016 to as many as 4.3 million in 2020. The consumer drone market, however, has become highly competitive, with aggressive price competition. China-based DJI is the leader in the consumer drone market. Piper is aware of two companies that intended to release a consumer drone in 2016 but decided to delay their product launch or not go forward because the market opportunity is not as lucrative as it was before, Jensen said. In addition to those two companies, action-camera maker GoPro ( GPRO ) last week announced that it is delaying the release of its Karma drone from Q2 until the holiday shopping season. Piper analyst Erinn Murphy on Monday reiterated her underweight rating on GoPro stock, with a price target of 6.50. GoPro stock tumbled 6.6% to 9.77 on Monday. That’s its lowest price in nearly three months and is close to its all-time low of 9.01, reached on Feb. 4. “We believe companies such as GoPro who have yet to launch a consumer drone could have a tough time, because as many category leaders have already found (DJI, Parrot etc.), developing a drone autopilot is not easy and typically takes second- and even third-generation models to develop a bug-free drone,” Murphy said. “At the time GoPro launches its drone this holiday, we are concerned that pricing could be an issue given how competitive pricing has already been for its major peers.” Piper’s Jensen says the drone market is likely to see a lot of consolidation over the next couple of years. “This consolidation will include bigger companies, not in the market today, acquiring already established players in order to take advantage of the growing market opportunity, as well as smaller companies merging in order to penetrate different areas of the market,” he said. “Over that same time period, we also believe new companies will be entering the market and private equity money will continue to flow in.” RELATED: Drone Delay Bad Karma For GoPro; Stock Skids On Q1 Report

Medivation Reportedly Yielding To Buyer Interest; Stock Surges

Shares of rising biopharma player Medivation ( MDVN ) jumped to an 11-month high Monday on reports the company now is willing to sell itself. Citing an anonymous source, Reuters reported that Medivation had signed non-disclosure agreements with Pfizer ( PFE ) and Amgen ( AMGN ), both of which were previously rumored to be interested in buying the company, while Sanofi ( SNY ) went public with its uninvited $9.3 billion bid last month. It still isn’t certain that those companies will actually bid, Reuters said. Medivation stock was up modestly in morning trading on the stock market today , but shares surged after the report came out in the early afternoon, eventually closing up 4.3% at 62.59. Medivation had initially resisted being bought by anyone, and in late March it reportedly hired advisers to help it fend off such attempts. The reason was implied by CEO David Hung in his refusal of Sanofi’s offer , when he accused the French pharma major of taking advantage of “market dislocation” that he believed led the market to undervalue Medivation’s stock. Medivation’s value has continued to go up since then, taking the stock to within 5% of its 52-week high last May. With an IBD Composite Rating of 97, putting it among the top 3% of all stocks in key metrics such as sales and earnings growth, it sits at No. 49 on the IBD 50 list of top-performing stocks.

Drew Industries’ Earnings Report Pushes RV Stocks Higher

The recreational vehicle market has been on an upswing in recent years as more Americans decide an RV is a better way to see the country. The RV and manufactured home industry group ranked No. 54 out of 197 groups as of Monday. It’s stumbled a bit, down from No. 11 six weeks ago. But it got a boost from the action of one leading member of the group, Drew Industries ( DW ), which reported earnings Monday morning. The stock gapped up and closed for a significant gain on big volume to a new all-time high as a result. Earnings came in at $1.45 a share, a 77% increase from a year earlier. Revenue rose 17% to $422.8 million. Analysts were expecting EPS of $1.03 and revenue of $403 million. EPS growth has been accelerating from 4% to 9%, 61% and 77%, an extremely bullish sign. Drew makes components for RV manufacturers, including doors, axles, mattresses, appliances and furniture. Drew’s earnings report helped boost the group to a strong gain Monday. RV growth is driven by demographics and lifestyle changes. One in 10 vehicle-owning households owns an RV, according to industry statistics. Eleven thousand baby boomers will turn 65 each day for the next 15 years, and they make up the strongest segment of RV owners. More people embrace outdoor activities, and millennials tend to be campers, who eventually end up buying an RV. Drew wasn’t the only stock helping the group to a gain Monday. Thor Industries ( THO ) hit a new high Monday on above-average volume. It’s extended from a 63.09 double-bottom buy point. Thor owns numerous RV brands, including the iconic Airstream brand, along with Dutchman, Heartland, Bison and CrossRoads. It makes both motor homes and travel trailers. It says it holds down costs by assembling RVs and buying components from other manufacturers. Besides Drew, one of those manufacturers is Patrick Industries ( PATK ), which makes components for the RV industry. It broke out of an awkward base without much volume in March. The buy point was 45.41. It’s since made a new high, but pulled back and has recently recovered its 50-day moving average. In its latest earnings report, EPS was 80 cents a share, besting estimates of 70 cents, and a 36% increase from a year earlier. Revenue was $278.63 million vs. estimates of $270 million. Despite the beat, the stock closed down 4.6% that day. The stock has worked its way back near that close.