Update: Kratos Continues To Receive Significant New Orders For Drones And Other Products
Dec. 30, 2014 3:02 AM ET | 1 comment | About: Kratos Defense & Security Solutions, Inc. (KTOS), Includes: PPA Disclosure: The author is long KTOS. (More...)
Summary
Kratos continues to announce a flurry of new orders, some of which are significant for a $300 million market cap company. At just over $5 per share, this stock appears significantly undervalued. Kratos offers the types of products (like drones) and cyber security solutions that are needed to protect against modern warfare threats. Analysts believe that Kratos is an attractive takeover target due to its product line and valuation. Defense sector stocks are starting to breakout and that means Kratos could be poised to trend higher.
Earlier this month, I wrote about Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) because I believe this stock is severely undervalued and it could also be a takeover target. Kratos has a market cap of just around $300 million but it has a contract backlog of roughly $1 billion and annual revenues that are also about $1 billion.
Compared to some of the major defense contractors, this company is relatively unknown by many investors but this could change over time since this company offers products and services that truly address the needs of modern warfare and cyber security. Kratos designs and manufactures various systems for unmanned aircraft (drones) such as aerial target systems, weapons guidance systems, unmanned vehicle control systems, flight termination systems, radar tracking transponders, sophisticated surveillance and access control systems, and more.
Kratos has announced a number of new orders in the past couple weeks some of which are significant in terms of dollar amount, especially for a company with a $300 million market cap. It's also notable that Kratos is getting orders for a number of its divisions which shows this company is executing and that it has offerings that are well received in multiple markets. Let's take a closer look at the most recent orders:
On December 29, Kratos announced it received a $9 million order for electronic warfare, missile and radar systems products. This order came to its "Electronic Products Division" and part of this order was for the delivery of integrated microwave assemblies. The Electronics Products Division designs, manufactures and packages specialized microwave and RF components, radar instrumentation, and flight systems.
On December 23, Kratos announced it received a $13 million order for helicopter air crew training. Kratos will manufacture, install and test Naval aircrew virtual environment simulators. These simulators provide various simulations which allow aircrew members to practice crew coordinations, aerial gunnery, search and rescue and other operations. This order was received by Kratos' Technology & Training Division which is a provider of airborne and ground vehicle systems as well as simulator and training systems for the United States and its allies.
On December 22, Kratos announced that it was awarded a $72.3 million contract to provide unmanned aerial target systems and technical support to the United States Air Force. This contract is expected to be executed through 2018, and it is another vote of confidence for the drone products that Kratos offers.
(click to enlarge)(click link below)
As the chart for the PowerShares Aerospace & Defense ETF (NYSEARCA:PPA) above shows, the defense sector is starting to break out from the recent trading range. CNBC's Jim Cramer recently said he believes that many countries around the world are seeing the need to boost defense spending. Furthermore, Kratos is well-positioned in this industry because spending on commercial and military drones is expected to reach $11.5 billion per year by 2024.
Analysts expect Kratos to earn 48 cents per share in 2015, and 78 cents per share in 2016. This implies the stock is trading at just about 10 times earnings. Plus, analysts see have price targets of about $10 and believe this company could be a likely takeover target which is detailed in this Barron's article. I also like that a number of insiders have recently been buying this stock.
Here are some key points for Kratos Defense & Security Solutions: Current share price: $5.25 The 52-week range is $4.54 to $9.18 Earnings estimates for 2015: 48 cents per share Earnings estimates for 2016: 78 cents per share Annual dividend: n/a
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