Defense tech and drone specialist Kratos Defense & Security Solutions(NASDAQ: KTOS) is popping up on more radars as the company's business matures.
On Monday, the stock shot up as much as 5.8%, and was up 3% as of 11 a.m. ET after JMP Securities initiated coverage of Kratos with an outperform rating.
The long-term plan is coming together
For years, Kratos has been a rare high-risk/high-reward stock in the usually staid defense industry. The company is a defense electronics specialist with a growing portfolio of next-generation unmanned aerial vehicles (UAVs).
Earlier this month, Kratos said it was making progress toward winning U.S. government orders for its Loyal Wingman UAVs capable of teaming with crewed aircraft to offer greater firepower in battle.
JMP Securities analyst Trevor Walsh believes the future is bright for Kratos, and he is starting coverage on the company with an outperform rating and a $27 price target. That number suggests 22% upside from the current price.
Walsh wrote that Kratos has opportunities for long-term capital appreciation, citing factors including a large total addressable market and strong products. The company is dabbling in some of the most intriguing areas of defense, including UAVs, space and satellites, and microwave electronics.
Is Kratos stock a buy?
The potential has been there for a while, but Kratos stock is basically unchanged over the past five years. The shares have visited a lot of highs and lows during that period, but investors so far don't have much to show for it.
It does appear that Kratos' investments are poised to take off, but with defense contracting, it often takes longer for potential to translate to profits than investors might hope. It is an intriguing stock to buy right now for the reasons Walsh mentioned, but investors need to know that it likely won't hit that $27 target overnight.
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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.
