Kratos Defense (KTOS) AI Stock Analysis

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Kratos Defense

(NASDAQ:KTOS)

59Neutral

Kratos Defense's overall score is driven by strong earnings call highlights, including significant program awards and partnerships, that suggest growth potential. However, this is tempered by financial performance challenges, particularly in profitability and cash flow consistency, as well as valuation concerns with a high P/E ratio. Technical analysis supports a positive outlook, though caution is warranted due to potential overbought conditions.

Positive Factors

Defense Budget Approval

The Continuing Resolution for the defense budget was approved ahead of expectations, which is favorable for KTOS.

Growth and Financial Performance

Kratos Unmanned Systems records first year of sales growth since 2021, with revenue growing 27.5% and organic growth of 25.1% driven by mounting demand for drone technology.

Joint Venture Opportunities

KTOS announced a new merchant Joint Venture with Israeli defense giant Rafael to manufacture rocket motors, addressing a $1B opportunity.

Negative Factors

Cash Flow and Execution Risks

Investing to support growth should weigh on cash flow, and there is risk around execution, timing, and budget sentiment.

Long-term Contract Challenges

Kratos is still working under long-term contracts that do not fully reflect the inflation of recent years, especially for some target drone inputs.

Kratos Defense (KTOS) vs. S&P 500 (SPY)

Market Cap

$5.07B

Dividend YieldN/A

Average Volume (3M)3.83M

Price to Earnings (P/E)310.4

Beta (1Y)1.13

Revenue Growth9.57%

EPS GrowthN/A

CountryUS

Employees4,000

SectorIndustrials

Sector Strength66

IndustryAerospace & Defense

Share Statistics

EPS (TTM)0.11

Shares Outstanding153,285,640

10 Day Avg. Volume2,418,267

30 Day Avg. Volume3,830,713

Financial Highlights & Ratios

PEG RatioN/A

Price to Book (P/B)N/A

Price to Sales (P/S)4.14

Price to Cash Flow (P/CF)25.80

P/FCF Ratio26.50

Enterprise Value/Market CapN/A

Enterprise Value/RevenueN/A

Enterprise Value/Gross ProfitN/A

Enterprise Value/EbitdaN/A

Forecast

1Y Price Target

$37.00

Price Target Upside15.91% Upside

Rating ConsensusModerate Buy

Number of Analyst Covering7

Kratos Defense Business Overview & Revenue Model

Company DescriptionKratos Defense & Security Solutions, Inc. operates as a government contractor of the U.S. Department of Defense. The company operates through two segments, Kratos Government Solutions and Unmanned Systems. The Kratos Government Solutions segment offers microwave electronic products, space and satellite communications, training and cybersecurity/ warfare, C5ISR/ modular systems, turbine technologies, and defense and rocket support services. The Unmanned Systems segment provides unmanned aerial systems, and unmanned ground and seaborne systems. It serves national security related agencies, the department of defense, intelligence agencies, and classified agencies, as well as international government agencies and domestic and international commercial customers. Kratos Defense & Security Solutions, Inc. was incorporated in 1994 and is headquartered in San Diego, California.

How the Company Makes MoneyKratos Defense makes money through a diverse revenue model that includes the sale of products and services across its various business segments. The company's key revenue streams are driven by contracts with the U.S. government and its agencies, including the Department of Defense. Kratos also generates income from commercial customers and international clients. Significant partnerships with defense contractors and technology firms contribute to its earnings by enhancing its capability to deliver comprehensive solutions in areas like unmanned aerial systems, space and satellite communications, and defense electronics. By focusing on innovation and advanced technology development, Kratos secures both long-term contracts and project-based revenue streams.

Kratos Defense Financial Statement Overview

Summary

Kratos Defense exhibits a positive revenue growth trajectory with stable but low profitability margins. While the balance sheet shows a robust equity position, the cash flow statement reflects volatility and challenges in maintaining consistent cash generation. The company's financial health is moderately stable, with areas for improvement in profitability and cash flow consistency.

Income Statement

Positive

Kratos Defense has shown a consistent revenue growth trend, increasing from $717.5M in 2019 to $1.14B in 2024. The gross profit margin has improved slightly over the years, reaching 25.26% in 2024. However, the net profit margin remains low at 1.43% in 2024, despite improvements from negative figures in previous years. EBIT and EBITDA margins have been relatively stable, though not exceptionally strong for the industry.

Balance Sheet

Neutral

The balance sheet reflects a strong equity base with stockholders' equity at $976M in 2023, but a high debt-to-equity ratio of 0.33, indicating moderate leverage. The company has reduced its total debt significantly by 2024, but the absence of data for total assets and stockholders' equity for 2024 limits further analysis. The equity ratio was about 59.79% in 2023, suggesting a solid financial structure.

Cash Flow

Negative

Cash flow analysis reveals volatility, with operating cash flow fluctuating significantly over the years. Free cash flow has been inconsistent, with notable improvements in recent years but still facing challenges. The operating cash flow to net income ratio is not impressive due to the low net income figures, and the free cash flow to net income ratio remains unsteady.

Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Breakdown
Income Statement		Total Revenue
1.14B	1.04B	898.30M	811.50M	747.70M
	Gross Profit
287.20M	268.60M	226.00M	225.10M	203.20M
	EBIT
29.00M	31.10M	5.50M	27.90M	29.30M
	EBITDA
93.60M	79.50M	26.50M	62.80M	64.40M
	Net Income Common Stockholders
16.30M	-8.90M	-34.10M	500.00K	79.60M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
329.30M	72.80M	81.30M	349.40M	380.80M
	Total Assets
1.95B	1.63B	1.55B	1.59B	1.56B
	Total Debt
282.00M	321.40M	301.80M	339.50M	348.50M
	Net Debt
-47.30M	248.60M	220.50M	-9.90M	-32.30M
	Total Liabilities
597.70M	634.00M	604.00M	629.20M	622.70M
	Stockholders Equity
1.35B	976.00M	936.30M	945.10M	925.30M
Cash Flow		Free Cash Flow
-8.50M	12.80M	-71.10M	-15.70M	10.70M
	Operating Cash Flow
49.70M	65.20M	-25.70M	30.80M	46.60M
	Investing Cash Flow
-69.70M	-43.80M	-177.40M	-52.10M	-87.30M
	Financing Cash Flow
277.60M	-30.70M	-63.30M	-9.30M	247.70M

Kratos Defense Technical Analysis

Technical Analysis Sentiment

Positive

Last Price31.92

Price Trends

50DMA

29.65

Positive

100DMA

29.55

Positive

200DMA

26.21

Positive

Market Momentum

MACD

0.77

Negative

RSI

53.74

Neutral

STOCH

83.25

Negative

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For KTOS, the sentiment is Positive. The current price of 31.92 is above the 20-day moving average (MA) of 31.28, above the 50-day MA of 29.65, and above the 200-day MA of 26.21, indicating a bullish trend. The MACD of 0.77 indicates Negative momentum. The RSI at 53.74 is Neutral, neither overbought nor oversold. The STOCH value of 83.25 is Negative, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for KTOS.

Kratos Defense Risk Analysis

Kratos Defense disclosed 67 risk factors in its most recent earnings report. Kratos Defense reported the most risks in the “Finance & Corporate” category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

Kratos Defense Peers Comparison

Overall Rating

UnderperformOutperform

Sector (62)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
AVAV	68 Neutral	$4.17B	126.27	3.94%	―	5.21%	―
HXL	68 Neutral	$4.19B	32.73	8.14%	1.19%	6.31%	28.25%
MOG.A	64 Neutral	$5.21B	25.10	12.07%	0.69%	7.22%	22.61%
Sector *	62 Neutral	$4.17B	11.26	5.46%	215.76%	4.12%	-8.54%
MRCY	61 Neutral	$2.86B	―	-6.10%	―	-1.21%	-4.63%
KTOS	59 Neutral	$5.07B	310.41	1.40%	―	9.57%	―
SPR	37 Underperform	$3.85B	―	81.63%	―	4.44%	-202.63%

* Industrials Sector Average

Performance Comparison

KTOS

Kratos Defense

31.92

14.09

79.02%

AVAV

AeroVironment

144.20

-5.52

-3.69%

HXL

Hexcel

50.50

-11.41

-18.43%

MRCY

Mercury Systems

47.24

19.72

71.66%

MOG.A

Moog

159.89

5.98

3.89%

SPR

Spirit AeroSystems

33.29

0.39

1.19%

Kratos Defense Earnings Call Summary

Earnings Call Date: Feb 26, 2025 | % Change Since: 27.88% | Next Earnings Date: Apr 30, 2025

Earnings Call Sentiment Neutral

The earnings call for Kratos Defense & Security Solutions highlighted strong organic growth, significant program awards, and strategic partnerships, indicating a positive outlook. However, challenges related to supply chain, cost pressures, and ongoing CRAs present notable headwinds.

Highlights

Strong Organic Revenue Growth

Kratos Defense & Security Solutions achieved 2024 organic revenue growth of 9.1% and forecasts 2025 organic revenue growth of 10%. Additionally, they forecast 2026 organic revenue growth of 13% to 15%.

High Book-to-Bill Ratios

The company reported Q4 and full-year book-to-bill ratios of 1.5 to 1 and 1.2 to 1, respectively.

Significant Mach-TB Program Award

Kratos received the largest award in the company's history with the Mach-TB 2.0 hypersonic program at approximately $1.5 billion.

Partnership with Rafael for Prometheus

Kratos and Rafael established the Prometheus Energetics Joint Venture to focus on solid rocket motors and energetics, with significant investment plans.

Successful Unmanned Systems Growth

Unmanned systems reported organic revenue growth of 10.3% for the fourth quarter.

Cash Flow and Financial Health

Fourth quarter cash flow from operations was over $45 million, and Kratos ended the year with $329 million in cash and zero drawn on their $200 million line of credit.

Lowlights

Supply Chain and Cost Challenges

Kratos faces increased subcontractor and material costs on certain multi-year fixed-price contracts, with ongoing supply chain and inflation challenges.

Continuing Resolution Impact

The industry, including Kratos, has been operating under a continuing resolution authorization (CRA) for 12 of the past 18 months, impacting new and existing programs.

Commercial Space Business Headwinds

The commercial satellite business faced declines due to OEM delays in the manufacturing and delivery of software-defined satellites.

Cost Pressures in Unmanned Systems

Unmanned systems faced cost growth from inflation on subcontractors, impacting margins negatively.

Company Guidance

In the Kratos Defense & Security Solutions Fourth Quarter 2024 Earnings Conference Call, Eric DeMarco provided financial guidance that highlighted notable achievements and projections. Kratos saw organic revenue growth of 9.1% for 2024 and expects further growth of 10% in 2025 and 13% to 15% in 2026. The company's EBITDA margins are anticipated to improve significantly starting in 2026 due to increased production in existing programs and contract renewals at higher rates. For the fourth quarter, Kratos reported cash flow from operations exceeding $45 million, with book-to-bill ratios of 1.5 to 1 and 1.2 to 1 for Q4 and the full year, respectively. This financial performance positions Kratos for sustained growth, supported by a robust pipeline of defense contracts and strategic initiatives, including a significant $1.5 billion award for the Mach-TB 2.0 hypersonic program. The company plans substantial capital investments in facilities and equipment over the next two years to support this growth, while maintaining a balanced approach to internal investment and strategic partnerships.

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.