A Wall Street analyst is tapping the brakes on Kratos Defense & Security Solutions (KTOS +2.94%), and investors are taking notice. Shares of the defense tech company fell by 4.6% at the open Wednesday.
Don't expect fireworks
Kratos manufactures drones and defense electronics products. It's best known today for its aerial target drones, but it also has a line of more advanced "loyal wingman" products that it hopes will one day fly into battle in support of crewed aircraft.
Investors have been drawn in by Kratos' potential, but things hardly ever move fast inside the Pentagon.
In a quarterly earnings preview, Jefferies analyst Sheila Kahyaoglu lowered her firm's price target on Kratos from $22 to $20. The analyst believes Kratos is likely to reaffirm -- and not raise -- its 2024 guidance as companies continue to watch how the federal budget process evolves in Washington.
Shares of Kratos have traded in a range between $16.50 and $20.50 for most of 2024. Kahyaoglu's new price target implies that the stock could be stuck in neutral even after the company releases its first-quarter results next month.
NASDAQ: KTOS
Key Data Points
Is Kratos stock a buy heading into earnings season?
Few companies have more potential for outsized growth in the defense sector than Kratos, but being a shareholder has required a lot of patience over the past five years. It's never easy to accurately predict how the government will proceed, so Kahyaoglu's caution here seems prudent.
Kratos' portfolio of unmanned aerial vehicles and its other work on futuristic defense initiatives makes the company an enticing investment, but it will likely take years to pay off. For now, the stock is best owned by those who have the time and the patience to wait, and should be limited to a small piece of a well-diversified portfolio.
