Proposed cuts in military funding and the upcoming presidential election are the primary macro headwinds that continue to pressure the defense world as companies are starting to see changes in customer behavior, says Jeremy W. Devaney, a Vice President and Senior Research Analyst of BB&T Capital Markets.
“Specifically, we’ve spent a lot of time trying to get our arms around sequestration and possible impacts that the funding cuts may have on our universe, as well as the remainder of the defense world,” he said. “I’d say the broader macro trends are definitely negative, but there are positive stories underlying that.”
Devaney has a “buy” recommendation on AeroVironment, Inc. (AVAV), which specializes in unmanned aerial vehicles, which have been named a priority area by the Department of Defense. He says there is risk prevalent in AVAV, but he believes its product set and slate of opportunities is such that it will remain a priority in the face of potential budget cuts.
“We like AVAV right now,” Devaney said. “AVAV because of its very defined positioning within its customer and its low dollar cost to the customer. We think that AVAV might thread the needle through sequestration.”
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