Why this leading broker just upgraded DroneShield shares

DroneShield Ltd (ASX: DRO) shares have been having a tough time in recent sessions.

After being downgraded by analysts at Bell Potter last week on valuation grounds, the high-flying counter drone technology company’s shares have shed significant value.

Well, the good news for shareholders is that the very same broker has now decided to upgrade its shares.

DroneShield shares upgraded

According to a note out of Bell Potter this morning, its analysts have upgraded the company’s shares to a buy rating with a 90 cents price target.

Based on the current DroneShield share price of 61.5 cents, this implies potential upside of 46% for investors.

The broker explained that it made the move following the recent pullback. It said:

We make no changes to our forecasts in this update, however with the share price retracing some of its recent gains, we see an opportunity to reinstate our BUY recommendation. DRO is now a profitable growth company providing exposure to relevant investment trends, including rising defence expenditure globally, the increasing risk of drones and the role of AI/ML technology. With the company’s strong financial position, detailed sales pipeline and the current macro environment, we are confident the company will continue to grow its earnings in 2024.

Bell Potter also spoke positively about the company’s sales outlook. It adds:

The company recently provided the most detailed insight into its ever-growing sales pipeline, which currently stands at $388m for CY24 and $510m in total. This includes 34 projects, estimated at ~$86m in value, where the “customer has advised they are placing order with DRO,” however no contract has been awarded at this stage.

DRO’s confidence in the sales pipeline is reflected in its recent investment (committed supply chain payments of $30m) in its inventory balance, which we view as a leading indicator of near-term sales announcements.

DroneShield shares remain up 62% over the last 12 months.

The post Why this leading broker just upgraded DroneShield shares appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended DroneShield. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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