Al Root

Shares of AeroVironment fell Wednesday. Ukraine is the most likely reason.

Defense Secretary Pete Hegseth addressed NATO on Wednesday, emphasizing the Ukraine-Russia war must end.

"We want, like you, a sovereign and prosperous Ukraine, but we must start by recognizing that returning to Ukraine's pre-2014 borders is an unrealistic objective. Chasing this illusionary goal will only prolong the war and cause more suffering," reads part of his prepared remarks. "That said, the United States does not believe that NATO membership for Ukraine is a realistic outcome of a negotiated settlement."

Ukraine's potential NATO membership is a sore spot for Russia, which doesn't like NATO members bordering the country. Hegseth's border comment also signals that the U.S. is prepared to let Russia keep some of its territorial gains.

AeroVironment stock is being hit hardest in the defense sector. Shares were down almost 9% at $163.41, while the S&P 500 and Dow Jones Industrial Average were down 0.4% and 0.5%, respectively.

AeroVironment has seen elevated demand for its guided munition products that have helped support Ukraine's war fighting efforts.

Sales of the company's uncrewed-systems segment grew 22% year over year in its fiscal first quarter, driven in part by growth of sales to Ukraine. Total revenue in the quarter nearly reached $190 million, and the uncrewed-systems segment sales were about $120 million.

Through late trading Wednesday, AeroVironment shares were down about 25% over the past three months but up about 30% over the past 12 months. The stock has been volatile while demand for its unmanned weapons systems has expanded.

Lockheed Martin shares were down 1.4%. Its shares are down about 22% over the past three months. Shares of traditional defense companies have been weak since the presidential election. Investors aren't sure what contract reform, and efforts to eliminate government waste mean for the sector.

Write to Al Root at allen.root@dowjones.com

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February 12, 2025 15:08 ET (20:08 GMT)

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