AeroVironment, Inc. (NASDAQ:AVAV) shares rose as much as 13 percent today after the activist investment firm Engaged Capital LLC disclosed a more than 5 percent stake in the drone maker. The company’s stock has struggled in recent years, specifically taking a dive earlier this year after an especially weak earnings report.
Engaged Capital’s announced investment was confirmed today in a securities filing, and management at AeroVironment issued an official statement in response to the filing from Engaged Capital.
Engaged Capital invests $25 million
The activist investor sunk approximately $25 million in its investment into AeroVironment, Inc. (NASDAQ:AVAV). The Wall Street Journal’s Ryan Dezember reports that the firm started buying the company’s shares late last year and has been discussing strategy with the company’s management.
The firm reportedly wants the drone maker to take some of the cash from its balance sheet and start focusing on growing the company. It also wants AeroVironment to begin lessening its reliance on defense spending in the U.S. and engage more with investors by showing how it plans to move into new markets.
Engaged Capital highlights path to fair valuation
In the 13D that was filed with the Securities and Exchange Commission today, Engaged Capital set forth a path it believes will help AeroVironment, Inc. (NASDAQ:AVAV) shares reach a fair valuation. Street Insider combed through the filing and highlighted some of the most important suggestions made by the firm.
Engaged Capital stated that it doesn’t think the company’s current share price reflects its potential for earnings from its Unmanned Aircraft Systems (UAS) business, the value of its cash and investments or its position in going after a number of growth opportunities in the UAS market. The firm also thinks the company’s intellectual property isn’t being reflected in its stock price.
Among the many areas of growth Engaged Capital sees for AeroVironment, Inc. (NASDAQ:AVAV) are mission services like what the company could provide specifically for the U.S. Department of State, which is expected to issue a request for proposal. The agency’s proposal could be as high as $1 billion over five years. Other areas for growth as suggested by Engaged Capital include Global Observer long endurance planes, electric vehicle charging stations (another technology offered by AeroVironment), and small and commercial UAS.
The firm also suggested that AeroVironment, Inc. (NASDAQ:AVAV) add some more board members with experience in capital allocation and public company valuation.
AeroVironment responds to Engaged Capital
Today’s statement from AeroVironment, Inc. (NASDAQ:AVAV) was published on HeraldOnline, and it indicates that the company’s management “welcomes open communications with all of its stockholders and values their input towards the goal of enhancing stockholder value.”
The company went on to say that its management and board members “regularly evaluate the company’s capital structure and capital allocation priorities.” It also explained the importance of a strong balance sheet in a field driven by innovation, saying that the cash enables it to “support growth initiatives.” AeroVironment also emphasized the experience of its board members, a direct answer to concerns raised in today’s filing.