Why Redwire Stock Popped This Morning
Key Points
The Wall Street Journal reports the U.S. Pentagon may award subsidies to U.S. drone companies.
Several companies were named as likely winners.
Redwire was not one of them.
Redwire (NYSE: RDW) stock jumped out of the gate Thursday, soaring 11% before giving back most of its gains. As of 11 a.m. ET, the stock is up 3.2%.
And why? The Wall Street Journal just reported that the Trump Administration may make financial investments in U.S. drone manufacturers, aiming to subsidize production of low-cost disposable attack drones commonly referred to as first-person view or "FPV."
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Image source: Getty Images.
What we know about the new drone plan
The Trump administration is pursuing deals with "a group of drone companies," reports WSJ. Privately held Performance Drone Works and Neros Technologies, both winners of Drone Dominance Program contracts, are believed to be two companies in the running, as is publicly traded Unusual Machines (NYSEMKT: UMAC).
Redwire is not.
That sounds like bad news for Redwire, which placed a big bet on the drone sector when it acquired Edge Autonomy last year in a near-$1 billion deal. Still, negotiations are ongoing, and the Pentagon -- which will manage the investments -- is "continuing to vet the companies." Potentially, that could mean not all the named companies will get funding... or that Redwire won't.
What's next for Redwire?
If Redwire does win government support, what form might that take?
Prior Trump Administration investments have promoted industries critical to national security, while also creating the potential for government profit if the investments pay off. When the Department of Energy awarded a 10-year supply contract to rare-earth element miner MP Materials (NYSE: MP) last year, for example, it also demanded stock in MP.
Any deal with Redwire could take a similar form, comprise loans conditioned on hitting milestones, or come as no-strings-attached grants. For the time being, we simply don't know how this will play out -- but as soon as we know, we'll let you know.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Redwire. The Motley Fool recommends MP Materials. The Motley Fool has a disclosure policy.
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