Kratos Defense & Security (KTOS 9.12%) beat expectations in the quarter, predicted stronger-than-expected top-line growth for 2024, and announced a significant new government contract. Investors are soaking in the good news, sending Kratos shares up 17% at the open on Wednesday.
Quarterly results were on target
Kratos is a second-tier defense contractor with a significant presence in unmanned aerial vehicles (UAVs) and space systems. The stock has tended to be more volatile than the defense primes, with a lot of potential but far fewer major contracts to provide reliable revenue growth.
The company's fourth quarter came in hot. Kratos earned $0.12 per share on revenue of $273.8 million, surpassing the consensus estimate of $0.09 per share on $254 million. The company generated $330 million in the quarter, ending the period with a consolidated book-to-bill ratio -- a measure of future business compared to business done in the current quarter -- of 1.2.
For the year, revenue grew by 15.5% to $1.037 billion.
"Kratos' strategy as a technology company and making internally funded investments to be first to market with affordable systems, software and products, is being successfully executed," Eric DeMarco said in a statement. "Kratos' low cost, innovation, rapid development and engineering up front for affordable mass production, brings significant value to our customers, our prime system integrator partners in teaming situations, and to our shareholders."
The company also announced it had won a Space Force communications contract with a maximum value of $579 million, which is both a significant boost to future revenue and an indication that, as DeMarco said, the company is having success winning new business.
Is Kratos a buy after its strong earnings report?
Among defense stocks, Kratos has always been one of the higher-risk, higher-reward propositions. Investors have been waiting for years to see if it will realize its potential. These results, and the contract announcement, are significant steps in Kratos' journey.
The company expects 2024 revenue of between $1.125 billion and $1.15 billion, which represents 8% growth on the low side and is above the $1.11 billion Wall Street consensus. Kratos still has a number of next-generation UAVs in development, including some on demonstration with government customers, that could offer further upside.
Kratos historically has not been a good stock for the risk-averse, but the company appears to be heading in the right direction. For those seeking defense exposure with more growth potential than the primes, Kratos is an intriguing stock to consider.
