Kratos Defense & Security Solutions is the IBD Stock of The Day for Tuesday. KTOS stock is working toward an entry as shares trade near their highest level in nearly two years.
San Diego-based Kratos Defense makes communications and radar systems, payload vehicles, rockets and unmanned systems, including a subsonic fighter called the Valkyrie intended to fly alongside modern manned fighter jets.
Kratos is coming off its fourth-quarter report from Feb. 13 that saw earnings increase 50% to 12 cents per share adjusted on about 10% revenue growth to $273.8 million. The results marked the third quarter of 50% earnings growth in the last four periods and cleared FactSet earnings forecasts of 8 cents per share on $256.3 million in sales.
Revenue from Kratos' government solutions business unit jumped 17% to $218.4 million, but was offset by an 11.6% decline in sales of unmanned systems to $55.4 million.
Kratos guided Q1 revenue of $240 million to $260 million, right in line with analyst forecasts of $250 million. The company sees full-year sales ranging from a record $1.125 billion to $1.15 billion, compared with $1.037 billion for fiscal 2023.
Wall Street expects full-year earnings to rise 4.7% to 44 cents per share adjusted, on $1.13 billion in revenue.
KTOS stock leapt 17% on Feb. 14 after earnings, its largest daily gain since August 2023.
Next-Gen Drones
Benchmark analyst Josh Sullivan on Tuesday raised his price target on KTOS stock to 25 from 20, noting the company stands to benefit from the "emergence of high-attrition warfare." That basically refers to disposable weaponry including drones, micro-engines, missiles and space technology.
Meanwhile, the U.S. Air Force is preparing to award contracts for its first batch of collaborative combat aircraft (CCA), next-generation drones loaded with artificial intelligence and autonomous software to fly alongside manned aircraft during missions. Reports from Defense News indicate the drones will be capable of conducting target strikes, reconnaissance and surveillance missions, and electronic warfare operations.
The Air Force plans to narrow its contractor selection to two to three companies over the next few months before awarding the contracts in fiscal 2025, Secretary of the Air Force Frank Kendall said last week during a roundtable at the Air and Space Force Association's Air Warfare Symposium, Defense News reported.
Sullivan believes Kratos is best-positioned to subcontract on the first round of CCA's with Northrop Grumman as a likely partner, according to the research note. He maintained a buy rating on KTOS stock.
Kratos Stock
KTOS stock briefly topped a 21.42 buy point for a cup base in the big move triggered by the Feb. 14 earnings beat. Shares could be working on forging a handle in the next two trading days or so, which would have a 21.09 entry. But the 21.42 entry remains in play.
The Feb. 14 high for Kratos stock mark its highest level since April 2022.
KTOS stock has a 91 Composite Rating out of a best-possible 99. The Composite Rating combines various technical and fundamental indicators into one easy-to-read score. KTOS has an 86 EPS Rating. Kratos' relative strength line is trending toward December highs and has a 92 RS Rating.
Kratos shares slid 1.3% Tuesday. The stock is up more than 21% so far this month but only climbed 1% on the year.
You can follow Harrison Miller for more stock news and updates on X/Twitter @IBD_Harrison
