Monday - Kratos Defense (NASDAQ:KTOS) & Security (NASDAQ:KTOS) shares have been upgraded by B.Riley from Neutral to Buy with a new price target set at $35.00, up from the previous $26.00. The substantial increase in the price target accompanies the largest contract win in the company's history—a $1.45 billion OTA contract for the Multi-Service Advanced Capability Hypersonic Test Bed (MACH-TB) 2.0.
The contract, aimed at enhancing hypersonic flight-testing for the Department of Defense (DoD), positions Kratos as the prime contractor for Systems Engineering, Integration, and Testing (SEIT) for the project's second phase. With a market capitalization of $4.45 billion and revenue growth of 11.3% in the last twelve months, Kratos shows promising fundamentals.
InvestingPro subscribers can access 10+ additional exclusive insights about Kratos's growth prospects and financial health. This role was previously held by Leidos in the first phase, which now serves as a subcontractor under Kratos. The contract is expected to fully utilize its $1.45 billion value, with all options exercised, given the national security emphasis on keeping pace with defense advancements amid global threats.
The MACH-TB 2.0 contract is a pivotal part of Kratos's qualified bid and proposal pipeline, previously valued at $12 billion. The win signifies a major milestone for the company and is seen as a direct response to the defense challenges posed by nations such as Russia, China, Iran, and North Korea.
Kratos's role as SEIT prime involves collaboration with a consortium of partners, including Rocket Lab, Koda Technologies, Corvid Technologies, Northwind, JRC, Stratolaunch, CFD Research, PAR Systems, and academic institutions like the University of Minnesota and Purdue University. These partnerships are facilitated through the National Security Technology Accelerator (NSTXL).
This contract is not only a landmark achievement for Kratos but also reflects the importance placed on advancing national defense capabilities. The analyst at B.Riley has underscored the significance of this contract as a key driver for the upgrade in Kratos's stock rating and the elevation of the price target.
While trading at relatively high earnings multiples, Kratos maintains a solid financial health score according to InvestingPro's comprehensive analysis, available in their detailed Pro Research Report covering 1,400+ US equities.
In other recent news, Kratos Defense & Security Solutions received a significant Other Transaction (JO:TCPJ) Agreement (OTA) potentially worth $1.45 billion over five years for the MultiService Advanced Capability Hypersonic Test Bed (MACH-TB) 2.0. This contract could be the largest in the company's history.
Kratos also secured a $6.5 million contract from the Defense Advanced Research Projects Agency (DARPA) for hypersonic flight testing. Furthermore, the company is set to develop a supersonic engine in collaboration with GE Additive and StandardAero, a development fully funded by Boom Supersonic.
Research firms Jefferies, and Raymond (NS:RYMD) James have maintained their respective Hold, and Strong Buy ratings on Kratos. In terms of financials, the company reported robust third-quarter revenues in 2024, reaching $275.9 million, marking an 8.7% organic growth in unmanned systems and surpassing estimates. The company is also projecting a 10% year-over-year revenue growth for 2025.
These recent developments highlight Kratos' growth trajectory and capability to secure major contracts within the defense sector. The company's strong financial health, indicated by a current ratio of 3.22, supports its operational capability and expansion into new high-growth markets.
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