DroneShield Ltd (ASX: DRO) shares have been on wild but successful ride this year.

Despite pulling back materially from July's record high, the counterdrone technology company's shares are up almost 250% since the start of the year.

Unfortunately, one leading broker believes that its shares could have now peaked for the time being and has downgraded them.

DroneShield shares downgraded

According to a note out of Bell Potter, this morning the broker has downgraded the company's shares to a hold rating with a $1.35 price target.

This is broadly in line with where DroneShield's shares are currently trading.

Bell Potter notes that the company has just announced a new contract win. This was a $13.5 million contract, which is the second largest in company history, from a repeat US Government customer. It brought the total value of contracts announced year to date to $31.3 million.

However, while this contract win is a positive, the broker points out that it was expecting DroneShield to have reported even more contracts by this time. As a result, it sees downside risk to its sales estimates. It commented:

Our CY24 revenue forecast assumed a greater value of contracts (>$40m) being announced by this stage in the year and therefore the downside risks to our forecasts have increased. As such, we have reduced our CY24 revenue estimate by -15% to $82.4m, which has driven more substantial downgrades to bottom line earnings based on the significant scaling of the business in CY24. The upside risk to our new forecasts includes 1) multiple material contracts announced and recognised before year end and 2) greater underlying sales than anticipated in Q3 and Q4.

What else did the broker say?

Commenting on the downgrade, the broker said:

We have made minor changes to our CY25/CY26 forecasts largely driven by lower SaaS revenue (from reduced sales in CY24) and revisions to bottom-line estimates. Further, we have reduced the WACC we apply in the DCF from 9.5% to 9.1% due to a reduction in the risk-free rate from 4.5% to 4.0%. The net result is no change in our price target of $1.35, which is a <15% premium to the current SP so we downgrade our recommendation to HOLD.

Whilst we have revised our forecasts, we remain optimistic DroneShield will deliver a strong finish to the year based on 1) the significant level of inventory on hand to facilitate rapid fulfilment, 2) the historical seasonality of the business, and 3) numerous near-term opportunities detailed in the sales pipeline. We anticipate a Q3 update from the company in the next couple of weeks, consistent with previous periods.