This Canadian stock benefits from increased defense spending, analyst says

Volatus Aerospace’s (Volatus Aerospace Stock Quote, Chart, News, Analysts, Financials TSX:FLT) first Canadian Armed Forces contract and growing defence order book have strengthened its growth prospects, although higher spending and lower margins continue to delay profitability, according to Haywood Securities analyst Gianluca Tucci.

In his Nov. 11 report, Tucci maintained his “Buy” rating and $0.90 target on the Canadian drone technology company, positing that recent contract wins support its expansion into defence and military surveillance.

“Q3 was a print that confirms the demand side of the sovereign defence thesis,” Tucci said.

Volatus reported third-quarter revenue of $10.5-million, up 24.9% sequentially but down 0.9% year-over-year. Revenue fell short of Tucci’s $11.3-million estimate and consensus of $10.6-million. The company recorded negative Adjusted EBITDA of $2.9-million, compared with Tucci’s forecast loss of $700,000 and consensus of $3.2-million. Gross margin declined to 30.4% from 32.7% a year earlier as lower-margin initial defence deliveries accounted for more revenue. Personnel costs increased 35%, while professional fees more than doubled as Volatus expanded its defence operations.

Despite the weaker profitability, Tucci said the company’s progress in securing military contracts supports his longer-term outlook. Volatus received its first contract under Canada’s Defence Drone Initiative (DDI), covering an initial order of 100 tactical intelligence, surveillance and reconnaissance drone systems for the Canadian Armed Forces, with delivery expected in December. The five-year agreement includes options for up to 4,900 additional systems.

The company also delivered the first portion of a NATO-allied surveillance contract and opened its 53,000-square-foot manufacturing facility in Mirabel, Quebec. Volatus ended the quarter with $101.7-million in total contract value through 2031, including $75.7-million in signed contracts and agreements and $26-million in customer options. Tucci said converting these commitments into deliveries and higher-margin revenue will be important to improving earnings.

“The next proof points are DDI delivery orders, the second NATO tranche, and sequential margin recovery from services mix. The Company notes there may be up to 20 additional RFP’s put to market in due course under the DDI,” he said.

The analyst believes increased Canadian defence spending will continue to support demand regardless of changes in the U.S. political environment.

“Despite the midterm elections in the USA going blue and Trump’s war powers likely to be limited, we believe Canada remains committed to rearming and restocking its defence inventories which is a fundamental positive for FLT,” Tucci said.

Volatus is also expanding its technology portfolio through acquisitions and development of proprietary drone systems, including AI-powered autonomous navigation, counter-drone software and heavy-lift aircraft. Tucci said these investments could position the company to capture higher-margin military and dual-use opportunities while maintaining its commercial operations in infrastructure inspection, energy and logistics.

Volatus ended September with $50.6-million in cash, down from $59.2-million in the previous quarter, providing funding for its near-term expansion.

However, Tucci increased his loss forecasts to reflect higher operating expenses ahead of expected defence revenue. He reduced his fiscal 2026 revenue estimate to $39.5-million from $40-million and increased his expected Adjusted EBITDA loss to $13-million from $8.6-million. For fiscal 2027, he raised his revenue forecast to $69.2-million from $65.2-million but increased his expected Adjusted EBITDA loss to $6.9-million from $3.7-million. Tucci said the company remains positioned to benefit from increased defence procurement, although profitability will depend on converting its contract pipeline into revenue.

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