Key insights
- Jefferies upgraded Kratos Defense to 'buy' based on growth prospects in its Government Solutions business, particularly in hypersonics and drone production. The analyst projects significant revenue and EBITDA growth through 2028, citing a large opportunity pipeline. While positive for KTOS, the broader market impact is limited.
Investing.com -- Kratos Defense & Security Solutions Inc. (NASDAQ:KTOS) shares rose 3% Monday after Jefferies upgraded the military contractor to buy from hold, citing growth potential in its Government Solutions business.
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.
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