Kratos Defense & Security Solutions Inc (NASDAQ:KTOS) stock fell 4.58% (As on April 7, 11:24:05 AM UTC-4, Source: Google Finance) after Jefferies upgraded the company to Buy from Hold with an $85 price target. A $14B opportunity pipeline that includes Prometheus and Hypersonics in Kratos Government Solutions could drive a greater than 30% compound annual growth rate in revenue to $2.4B in 2028, the firm tells investors. Analyst Sheila Kahyaoglu wrote that in an upside scenario, the Government Solutions business could see 31% compound annual revenue growth through 2028. The analyst set a price target of $85 based on the firm’s base case, with upside potential to $105.
“Upgrade KTOS to BUY: 1) $14BB oppty pipeline includes Prometheus and Hypersonics in KGS that could drive >30% CAGR to ’28E; 2) Valkyrie moving into larger production w/ USMC, USAF, and int’l customers driving upside mgns; 3) upside ’28 revs of $3.7BB (+57% vs base) and EBITDA of $500MM (+90% vs base); and 4) attractive entry pt w/ $85 PT based on 53X our base ’28 EBITDA & upside to $105 at 35X upside ’28 EBITDA vs Defense Tech peers’ 22X,” Kahyaoglu commented. The analyst noted that growth is supported by increasing hypersonic sales, while the company’s turbine technologies business has opportunities in missile propulsion, including through the Prometheus joint venture. Jefferies also highlighted an expected increase in production of the Valkyrie drone for the U.S. Marine Corps, U.S. Air Force, and international customers.
Meanwhile, the company has recently announced that it has been selected by the Naval Surface Warfare Center, Port Hueneme Division (NSWC PHD) for production and delivery of up to 36 Oriole™ solid rocket motors and three Thrust Vector Control (TVC) nozzle kits. The contract includes a funded base award for Oriole with options that, if fully exercised, bring the total contract value for solid rockets to $39,077,237. An option for 3 Oriole TVC production kits, valued at $10,136,009, is also included in the award.
On the other hand, the company had recently priced an underwritten public offering of 14,285,714 shares of common stock at $84.00 per share. The defense contractor expected to receive approximately $1.17 billion in net proceeds after deducting underwriting discounts and commissions. Additional funds will support new product and software development, strengthen the balance sheet for anticipated contract awards, and fund the recent acquisition of Nomad and pending acquisition of Orbit, along with future strategic acquisitions.