Kratos (KTOS) Down 18% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Kratos (KTOS). Shares have lost about 18% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Kratos due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Kratos Q4 Earnings Miss Estimates, Revenues Rise Y/Y

Kratos Defense reported fourth-quarter 2019 adjusted earnings of 9 cents per share, which missed the Zacks Consensus Estimate of 11 cents by 18.2%. The bottom line was flat year over year.

Including one-time adjustments, the company reported GAAP earnings of 3 cents per share, down 40% year over year.

For 2019, the company posted adjusted earnings of 34 cents per share, which came in line with the Zacks Consensus Estimate. The bottom line was up 41.7% from the prior year.

Total Revenues

Total revenues amounted to $185.1 million, missing the Zacks Consensus Estimate of $198 million by 6.5% and increasing 12.6% from $164.4 million reported in the year-ago quarter.

For 2019, the company recorded revenues worth $717.5 million, up 16.1% from last year’s number. The full-year top line missed the Zacks Consensus Estimate of $730.3 million by 1.8%.

Operational Update

Kratos’ operating expenses amounted to $39.1 million in the quarter compared with $34.7 million in the prior-year quarter. Selling, general and administrative expenses were up 0.04%, while research and development expenses rose 25%.

Kratos reported fourth-quarter 2019 operating income of $9.3 million, reflecting a decrease of 13.9% from the fourth quarter of 2018.

Kratos reported fourth-quarter 2019 bookings of $177.5 million and a book-to-bill ratio of 1.0 to 1.0. Backlog as of Dec 29, 2019 was $601.2 million compared with $608.7 million as of Sep 29, 2019.

Segmental Performance

Unmanned Systems: Net revenues during the fourth quarter increased 5.8% year over year to $38.3 million.

Government Solutions: Net revenues in the fourth quarter increased 14.5% year over year to $146.8 million.

Financial Details

As of Dec 29, 2019, cash and cash equivalents were $172.6 million compared with $182.7 million as of Dec 31, 2018.

Long-term debt, including net of current portion, totaled $295.1 million as of Dec 29, 2019, up slightly from $294.2 million as of Dec 31, 2018.

At the end of 2019, cash generated from operating activities was $28.9 million compared with $18.1 million in the prior year.

2020 Guidance

For first quarter of 2020, Kratos expects revenues in the range of $160-170 million. The Zacks Consensus Estimate for sales is pegged at $184.5 million, which lies above the company’s projected view.

For 2020, the company expects revenues in the range of $740-780 million. The Zacks Consensus Estimate for full-year sales is pegged at $824.4 million, which lies above the company’s projected range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -73.68% due to these changes.

VGM Scores

Currently, Kratos has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Kratos has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.