What happened

Shares of military contractor Kratos Defense & Security Solutions (KTOS -1.56%) surged 38.9% in May, according to data from S&P Global Market Intelligence.

The combat drone specialist stock's performance is even more impressive when you consider that the overall stock market fought a losing battle in May, with the S&P 500, including dividends, dropping 6.4%.

Valkyrie in flight with blue sky in background.

Valkyrie during initial test flight in March, 2019. Image source: Kratos Defense & Security Solutions

So what

We can attribute Kratos stock's powerful performance last month to the company's May 8 release of first-quarter 2019 results, which pleased investors. Both top and bottom lines exceeded Wall Street estimates and, befitting a company based in San Diego, management forecast sunny skies ahead for the second quarter. 

Shares popped 11.2% on the day following the earnings release and continued to cruise upward throughout the remainder of the month, helped by a May 24 vote of confidence from JPMorgan. The Wall Street firm upgraded the stock to overweight, with a $24 price target, citing enthusiasm about Kratos' Valkyrie "loyal wingman" military drone, which the analyst says "has gained the attention of Air Force brass," as reported by my colleague Rich Smith. 

KTOS Chart

Data by YCharts.

In Q1, Kratos' revenue grew 12.2% year over year to $160.4 million. Sales rose 9.2% if we exclude the $4.2 million contribution from Florida Turbine Technologies (FTT), a turbine engine maker in which Kratos acquired an 80.1% majority interest in February. Net income came in at $3.1 million, or $0.03 per share, up from a net loss of $0.02 per share in the year-ago period. Adjusted for one-time items, earnings per share jumped 60% to $0.08.

Wall Street had been looking for adjusted EPS of $0.02 on revenue of $153.6 million, so Kratos beat both estimates. 

"Every Kratos business unit exceeded its financial forecast in the first quarter, with the Company reporting increased revenues, margins, profitability and cash flow. Kratos' Unmanned Systems business had a very successful first quarter, including the initial flight of the XQ-58A Valkyrie," CEO Eric DeMarco said in the earnings release.

Here's the view of Kratos stock's performance from the higher vantage point of year-to-date 2019.  

KTOS Chart

Data by YCharts.

Now what

For the second quarter, Kratos said it expects sales in the range of $175 million to $185 million, representing growth of 15.7% to 22.4% year over year. 

The company also reaffirmed its full-year 2019 revenue guidance of $720 million to $760 million. At the midpoint, this reflects overall growth of 19.7% and organic growth of 12.5% year over year.