New US Policy Should Benefit Florida Drone Parts Co.
Research Report

Unusual Machines Inc. (UMAC:NYSEAMERICAN) "is positioned to win" given the U.S. federal government's July 10 policy change to classify small drones as ammunition versus aircraft previously, reported Litchfield Hills Research Analyst Barry Sine in a July 11 research note. The Florida-based company designs, manufactures and sells drone components and drones.

With low-cost armed drones being the tool of modern warfare and the U.S. expanding its ammunition stockpiles, Unusual Machines should benefit, Sine highlighted. Already the Pentagon purchases 1,500,000,000 rounds of ammunition per year and caches a lot more.

"The scale will be enormous," the analyst wrote. "At about $500 per Group 1 drone (covered under this new order), demand could be staggering."

130% Return Implied

Litchfield Hills reiterated its $20 per share target price on Unusual Machines, noted the analyst. After the reclassification news, UMAC shares jumped 10%. At the time of Sine's report, the company was trading at about $8.69 per share. From this price, the return to target is 130%.

Unusual Machines is a Buy.

Fuel for More Orders

Other changes as part of this new Pentagon policy bode well for the drone parts company, too, noted Sine. For instance, combat units now may buy small drones directly instead of through a slow purchasing process, and small drones may be purchased with military credit cards.

Also, each service branch must establish active-duty experimental formations by Sept. 1 to enable rapid scaling and full integration of small drones into combat training by 2026.

Critical Components Supplier

Sine likened Unusual Machines today to Intel during the personal computer (PC) boom. Just like Intel's chips were to personal computers then, UMAC's products are to drones now. The company supplies about $300 worth of essential parts, such as motors and controller boards, for each $500 drone.

As was the case for Intel in the past, upside for Unusual Machines upside lies in being embedded in many of the units sold," Sine wrote. "While UMAC may not book end drone sales, its customers will, driving substantial component orders to UMAC."

Major Catalyst

Litchfield Hills has been forecasting that passage of the U.S. defense budget for the next fiscal year will boost sales for Unusual Machines, Sine noted. The government's new small drone policy is expected to have the same effect but much sooner, good news for UMAC.

"We now anticipate a meaningful financial impact by year-end 2025," Sine added.

More Stock Data

At the time of Sine's report, Unusual Machines has 25 million shares outstanding. Its market cap is $215.8 million. Its 52-week range is $1.28–23.62 per share, the analyst noted.