Kratos Defense & Security Solutions (NASDAQ: KTOS) delivered better-than-expected results in the first quarter and provided positive updates about some of its most important drone programs. Investors are climbing on board, sending Kratos shares up 5% as of 2:30 p.m. ET on Wednesday.
A drone leader in a dangerous world
Kratos is a defense contractor focused on electronics and unmanned aerial vehicles (UAVs). The company earned $0.11 per share in the quarter on sales of $277.2 million, easily surpassing Wall Street's outlook for $0.05 per share on sales of $250 million estimate.
The company showed strength across the board, but its UAV division is likely getting most of the attention. That unit ended the quarter with a book-to-bill ratio of 1.4, meaning it has a lot more orders on the horizon relative to what it has billed so far.
For years, Kratos has been developing a range of "loyal wingman" UAVs designed to fly into battle alongside crewed fighter jets to confuse radar systems, provide greater firepower, and extend range. Kratos said its flagship drone, the Valkyrie, has two customers considering two separate orders, with management hopeful to get at least one order before the end of 2024.
The company also expects to receive an order for its Athena drone system in the next few months, and it said tensions in the Middle East and elsewhere are fueling customer interest in its range of tactical drone systems.
Is Kratos a buy after its strong earnings report?
For years, Kratos has been a rare high-risk, high-reward company in the defense sector. With each passing quarter, the company gets closer to seeing the development risks it has taken pay off in orders. Post-earnings, financial services company B. Riley raised its price target on the company to $24, from $22, reflecting the growing enthusiasm about the business.
These orders take time. Even after the first-quarter beat, Kratos reiterated its full-year guidance for $1.3 billion to $1.15 billion in sales. But for investors who have waited patiently for years for programs like the Valkyrie to mature, there is a lot to be excited about right now.
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Lou Whiteman has positions in Kratos Defense & Security Solutions. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
