Kratos Defense & Security Solutions, Inc (NASDAQ: KTOS) enjoys a meaningful lead in the emerging jet drone combat market, which could grow exponentially as fourth-generation fighters are retired and there is a shift to attributable air warfare, according to Benchmark.
The Kratos Analyst
Josh Sullivan initiated coverage of Kratos Defense & Security Solutions with a Buy rating and $19 price target.
The Kratos Thesis
Kratos’ Valkyrie drone has beaten several large defense primes for the Air Force Low Cost Attritable Strike Demonstrator program, Sullivan said in a Wednesday initiation note. (See his track record here.)
“Attributable warfare likely means high loss rates, and therefore, unit costs are important, and a difficult hurdle for less nimble defense primes,” the analyst said.
The Air Force had plans for thousands of attributable drones, and Valkyrie is the only drone that meets both cost and capability requirements, which equates to an annual run-rate opportunity of more than $100 million, he said.
In February 2019, Kratos acquired a majority stake in Florida Turbine Technologies and FTT Core, which are collectively known as KTT. This acquisition provides Kratos access to low-cost jet turbines, Sullivan said.
The company’s core KGS segment has exposure to key trends in space monitoring, ballistic missile support and electronic warfare, the analyst said.
Kratos Price Action
Shares of Kratos Defense & Security Solutions were down 5.05% at $10.91 at the time of publication Wednesday.
The XQ-58A Valkyrie demonstrator, a long-range, high subsonic unmanned air vehicle, completes its inaugural flight March 5, 2019 at Yuma Proving Grounds in Arizona. Photo by 88 Air Base Wing Public Affairs.