Kratos Defense & Security Solutions, Inc: Military Tech Stock Up 64% in 2019, Getting More Bullish

Kratos Defense & Security Solutions, Inc: Military Tech Stock
iStock.com/Oleksii Spesyvtsev

KTOS Stock Soars on Q1 Results and Geopolitical Tensions

Geopolitical tensions are running high, and so too are aerospace and defense sector stocks. One solid military tech stock that has been doing well is Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS).

Growing interest in defense technology stocks isn’t a big surprise. The trade war between the U.S. and China is in full bloom and political tensions between the U.S. and Russia and Iran have escalated quickly. Russian President Vladimir Putin has even warned of a possible repeat of the 1962 Cuban Missile Crisis.

On one hand, military tech stocks will benefit from the current geopolitical tensions. But what happens if a full-blown crisis is averted? Many of those stocks could see their prices retreat.

However, that would most likely not be the case with Kratos Defense & Security Solutions. That’s because KTOS stock has been rising for a long time—well outside of the purview of recent challenges involving the U.S. and the Middle East.

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Moreover, Kratos recently reported strong first-quarter results, which topped Wall Street expectations and provided strong second-quarter guidance.

Kratos Defense & Security Solutions, Inc Overview

Kratos Defense & Security Solutions is a military tech company that counts the U.S. Defense Department as a top customer. It also sells its technology to international governments and commercial customers.

The company’s five operating divisions include: “Microwave,” “Defense & Rocket Supporting Services,” “Unmanned Systems,” “Technology & Training,” and “C5ISR Modular Training.” (Source: “About Kratos Defense & Security Solutions,” Kratos Defense & Security Solutions, Inc, last accessed June 25, 2019.)

Through these business units, Kratos specializes in unmanned systems, cybersecurity, cyberwarfare, satellite communications, missile defense, microwave electronics, hypersonic systems, and training and combat systems.

Kratos stock is up 64% year-to-date and, more impressively, has increased 100% since the start of 2018 and approximately 445% since the start of 2016.

KTOS Stock Information
Market Cap $2.3 Billion
52-Week Change 95.1%
52-Week High $22.96
52-Week Low $11.05
Shares Outstanding 105.9 Million
Float 90.1 Million
50-Day Moving Average $20.86
200-Day Moving Average $16.78

(Source: “Kratos Defense & Security Solutions, Inc. (KTOS),” Yahoo! Finance, last accessed June 25, 2019.)

Kratos stock got a big boost when the company announced strong first-quarter financial results and a great outlook.

In addition to being fueled by ongoing geopolitical tensions in the Middle East, KTOS stock has been juiced by the growing interest in the company’s “Valkyrie” drone. The U.S. Air Force is potentially going to order 20 to 30 of the drones for additional experimentation. (Source: “US Air Force looks to fast track cash to Kratos Defense for more Valkyrie drones,” DefenseNews, June 17, 2019.)

Kratos made its first successful test flight of the Valkyrie in early March and successfully completed its second test flight in mid-June. It is relatively inexpensive to build, at around $2.0 million per drone. (Source: “Kratos’s Valkyrie combat drone to take flight next week: executive,” Reuters, February 28, 2019.)

Growing interest in the Valkyrie is backed by sustained long-term growth as well. That means the long-term gains are not going to be erased when the media attention surrounding the drone dies down.

Chart courtesy of StockCharts.com

Q1 Revenue Up 12%, Net Income of $3.1 Million

On May 8, Kratos Defense & Security Solutions announced its financial results for the first quarter ended March 31, 2019.

First-quarter revenue came in at $160.4 million, a 12.2% increase from the $143.0 million recorded in the same prior-year period. Excluding the impact of the February acquisition of Florida Turbine Technologies, revenue increased 9.2% year-over-year. (Source: “Kratos Reports First Quarter 2019 Financial Results,” Kratos Defense & Security Solutions, Inc, May 8, 2019.)

The company reported first-quarter net income of $3.1 million, or $0.03 per share, compared to a loss of $2.2 million, or $0.02 per share in the same period in the previous year.

Adjusted income from operations was $0.08 per share, a 60% increase from the $0.05 per share in the first quarter of 2018.

Looking ahead, Kratos expects to report second-quarter revenue in the range of $175.0 to $185.0 million. At the midpoint, that represents year-over-year revenue growth of 19%.

Second-quarter adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) is projected to be in a range of $16.0 to $18.0 million, a 40% increase over the second-quarter 2018 adjusted EBITDA (from continuing operations) of $12.1 million.

Kratos also reaffirmed its guidance for 2019 with revenue of $720.0 to $760.0 million, for year-over-year organic growth of 12.5% and adjusted EBITDA of $71.0 to $77.0 million. At the midpoint, that reflects year-over-year growth of 22.3%.

Analyst Take

Kratos Defense & Security Solutions, Inc has benefited from recent geopolitical tensions, but that’s only a small part of its success. KTOS stock has been on a tear since 2016 because the company continues to report strong financial results.

The outlook remains bright for the military tech firm as it continues to provide strong guidance and it sees interest in its Valkyrie drone gain steam. The future for Kratos stock remains bullish, even after tensions with Russia and Iran subside.