This opinion - text below- was issued before the 7.9-Billion $- 5 year contract for KTOS was issued. Would not be surprised if a big-defense contracter would thake this Chance and acquire KTOS.
The present capitalisation is $ 410 Mio
Mark Jordan, an analyst at Noble Financial Capital Markets, values the shares 50% above current levels. His 12-month target of $10.50 a share is based on an enterprise value of nine times 2014 Ebitda (earnings before interest, taxes, depreciation and amortization) and assumes that the company pays down some debt.
Kratos' defense products are geared toward critical aspects of modern warfare, and include unmanned surveillance planes, ballistic missiles, rocket-testing systems, and satellite ground systems.
Kratos also provides security and surveillance systems for homeland safety, and to commercial customers, including Chevron, Calpine Power Plants and Mellon Bank.
The U.S. government is the company's largest customer, with about 65% of sales.
For 2013, Jordan expects the company to earn 17 cents a share, adjusting for acquisition related charges, on revenue of $964 million. This year, he sees earnings rising to 79 cents a share, reflecting lower interest and acquisition related expenses.
Despite the difficult environment, Kratos hasn't lost or had any contracts cancelled. In the September quarter, the backlog remained unchanged at $1.1 billion.
Kratos could see growth from its public safety and security division, as well as from international customers. Combined, these customers will account for roughly 35% of revenue, and their business is expected to grow 10%. Meanwhile, the company has guided for the U.S. federal government's business to decline by about 5%, with company-wide revenue expected to be flat for the year.
In November, Kratos postponed refinancing its $625 million in Senior Notes, which carry a hefty 10% interest rate. The notes, which aren't callable until May, became too expensive to buy back before the call date. The company will likely buy them back in May, which could reduce annual interest expense by $15 million.
Kratos has a leveraged balance sheet, with $590 million in net debt. That level looks manageable, though, given the company's ample free cash flow generation; $48 million is expected this year, and management appears committed to using the cash to pay down debt.
We've made the point before that with its product portfolio, Kratos could make an attractive acquisition target for a larger defense concern. Any deal would likely occur at a large premium.
