Kratos Defense & Security Solutions (KTOS, Financial) stock saw a significant rise today, climbing 4.35%. The stock movement was driven by news that Kratos secured a $79.9 million contract from the U.S. Air Force to produce 60 BQM-167A target drones. This order represents about 7% of Kratos' annual revenue.
This contract is part of an ongoing five-year supply agreement, valued up to $374 million, for the production of target drones. The company is now nearing the end of this contract, with the 20th lot scheduled for delivery, out of an expected 21 lots in total. There is potential for the contract to be extended or renewed.
As of today, Kratos Defense & Security Solutions, Inc. (KTOS, Financial) is priced at $23.405. The market cap stands at approximately $3.534 billion, and it boasts a GF Value of $17.67, indicating the stock may be significantly overvalued. With a price-to-earnings (PE) ratio of 334.36, it is also close to a 3-year high. The price-to-sales (PS) ratio is 2.87, nearing a 2-year high of 2.84.
Despite challenges, KTOS exhibits strong financial strengths. It has a Piotroski F-Score of 8, indicating a very healthy situation, and an Altman Z-Score of 4.01, which is strong. Moreover, insider buying activity, with 24,376 shares bought over the past three months, suggests confidence in the stock's future performance.
However, potential investors should note some warning signs. Kratos’ gross margin has been in a long-term decline, with an average rate of -1.2% per year. Operating margins have decreased at an average rate of -25% over the past five years. Additionally, the company's return on invested capital (ROIC) is less than its weighted average cost of capital (WACC), which may indicate inefficiencies in capital deployment.
The stock has experienced significant growth, with a 52-week price change of 59.71% and a year-to-date change of 17.2%. Despite this, a GF Score of 80 suggests solid overall performance, but caution is advised due to the aforementioned valuation concerns.
In conclusion, while Kratos Defense & Security Solutions (KTOS, Financial) shows robust financial health and recent growth, potential overvaluation and declining margins warrant careful consideration before investing.
