Defense stocks had a great Monday morning — until AeroVironment reminded everyone that government contracts can vanish faster than a Pentagon budget line item.
Shares of AVAV cratered 19% in afternoon trading after the U.S. Space Force announced it’s reopening its $1.4 billion SCAR (Satellite Communications Augmentation Resource) program to competing bidders. The program, which builds mobile ground stations for tracking and commanding spacecraft, had been exclusively awarded to AeroVironment’s Blue Halo subsidiary. Now that exclusivity is gone — and so is a massive chunk of the company’s future revenue.
Raymond James analyst Brian Gesuale didn’t mince words, issuing a rare triple downgrade — from Strong Buy all the way down to Underperform. His math is brutal: AeroVironment carried $2.8 billion in total backlog, and the SCAR program alone could erase between $1 billion and $1.4 billion of it. That’s not a haircut — it’s a scalping. “SCAR was under a stop work order and now appears to be at risk of share loss or exclusion as the government determines its acquisition strategy,” Gesuale wrote in his note to clients.
The timing made it even more painful. AVAV had actually popped earlier Monday alongside the broader defense rally, as escalating U.S.-Iran hostilities sent investors rushing into Lockheed Martin (up 2.5%), RTX (up 4%), and Northrop Grumman (up 4.5%). AeroVironment caught that same updraft before the Space Force announcement turned a green day into a bloodbath. Palantir, another defense-adjacent name, surged 6% — making AVAV’s reversal look even worse by comparison.
For investors, this is a textbook reminder of concentration risk in defense stocks. When your single largest program of record gets pulled out from under you, no amount of geopolitical tailwinds can save the stock. AeroVironment is now down over 15% year-to-date, and the forward estimates that analysts had built their models on just got a wrecking ball through them. The company needs to find a way to fill a billion-dollar hole in its backlog — and Wall Street isn’t going to wait around patiently while they figure it out.