Today's sizzling performance of Redwire's stock, along with a surge in shares for RTX and AeroVironment, has sparked intrigue.
In an unexpected twist during today's stock market rally, a tiny space stock named Redwire (RDW) skyrocketed, outperforming the majority of other stocks. Fueled by the anticipation surrounding President Trump's inaugural address and its implications for stock market growth, Redwire's shares soared an impressive 51.39% as of 3:25 p.m. ET.
This dramatic leap in Redwire's stock price was prompted by its announcement of plans to purchase Edge Autonomy, an AI company and drone-tech specialist. The acquisition, valued at $925 million, includes $775 million in Redwire shares and $150 million in cash, and marks Redwire's entry into the defense industry.
Unsurprisingly, Redwire's competitors in the defense sector, such as RTX Corporation (RTX) and AeroVironment (AVAV), were not left untouched. RTX, a defense industry giant known for its Coyote unmanned aerial vehicle (UAV), saw a minor increase of 3.4%, while AeroVironment, a company specializing in drone technology, experienced a more substantial 4.5% increase.
But why Edge Autonomy?
Regular readers of this column might recognize Redwire as a favorite investment of mine, primarily due to its space company capabilities. The recent decision by Redwire to acquire Edge Autonomy transforms the company, placing it on the cusp of the defense industry. Redwire's intention to secure a majority stake in Edge Autonomy is via cash and stock transactions.
So, why all the fuss over Edge Autonomy? According to the company, the goal is to harness Edge Autonomy's AI expertise and develop combat-proven autonomous airborne platforms. Redwire expects this acquisition to enable a more immediate entry into the high-stakes, lucrative defense market.
The Price tag
The acquisition of Edge Autonomy appears to be a financially viable proposition, as Redwire forecasts revenue growth and increased free cash flow. The combined sales potential of the two companies is estimated to be between $535 million and $605 million, representing a potential doubling of Redwire's current revenues.
Additionally, Redwire projects that integrating Edge Autonomy will make the combined company free-cash-flow positive by the end of the year. While Redwire did not disclose specific numbers regarding the projected free cash flow, it is worth noting that analysts at S&P Global Market Intelligence already anticipated that Redwire would achieve profitability this year.
A worthwhile investment?
Paying the hefty sum of $925 million for a potential revenue boost (between $235 million and $300 million) is a sizable premium for Redwire. However, the longer-term profitability, scalability, and expansion prospects make this an appealing proposition for the space-focused company.
Nonetheless, the recent surge in Redwire's share price might not be justified, and it is essential to proceed with caution. As for the other defense stocks in play, AeroVironment might not be the best buy at its current P/S ratio of 6.2. On the other hand, RTX, trading at 2.1 times its sales ratio, appears to be a less-expensive entry point into the defense market.
Enrichment Data:
Edge Autonomy is a pioneering company that specializes in the design, development, and manufacturing of unmanned aerial systems (UAS) and autonomous systems, with a focus on defense requirements. With three decades of experience in autonomous systems, Edge Autonomy has developed a diverse UAS fleet, such as the Stalker series and the Penguin series, optimized for long-endurance, long-range reconnaissance missions.
The company's impressive relationships with the U.S. Department of Defense and Special Operations Forces yield a proven track record of successful systems tailored to real-world mission needs. The merger of UAV Factory and Jennings Aeronautics gave rise to Edge Autonomy in 2021.
By acquiring Edge Autonomy, Redwire not only bolsters its defense technology capabilities but also adds an autonomous systems component to its existing space infrastructure offerings, creating a comprehensive, end-to-end solution for multi-domain operations. The acquisition is financially attractive, given Edge Autonomy's reported revenue and adjusted EBITDA growth during the 12 months ending September 2024.
This acquisition of Edge Autonomy by Redwire represents a significant investment in the defense industry, potentially doubling Redwire's revenues and making the combined company free-cash-flow positive by the end of the year. In the foreseeable future, Redwire expects to benefit from Edge Autonomy's AI expertise and develop combat-proven autonomous airborne platforms, positioning itself well in the high-stakes, lucrative defense market.
