Kratos (KTOS) Down 7.6% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Kratos (KTOS). Shares have lost about 7.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Kratos due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Kratos' Q3 Earnings Beat Estimates, Revenues Rise Y/Y

Kratos Defense & Security Solutions reported third-quarter 2019 adjusted earnings of 9 cents per share, which outpaced the Zacks Consensus Estimate of 7 cents by 28.6%. The bottom line also improved 12.5% from the prior-year quarter’s earnings of 8 cents per share.

Barring one-time adjustments, the company reported GAAP earnings of 2 cents per share, flat year over year.

Total Sales

Net sales totaled $184.1 million, which beat the Zacks Consensus Estimate of $184 million and increased 15.5% from $159.4 million reported in the year-ago quarter.

Operational Update

Kratos’ operating expenses amounted to $37.1 million in the quarter compared with the prior-year quarter’s $34 million. Selling, general and administrative expenses were up 7.3%, while research and development expenses rose 4.6%.

Kratos reported third-quarter 2019 operating income of $11.5 million, reflecting an increase of 13.9% from the third quarter of 2018.

Kratos reported third-quarter 2019 bookings of $172.5 million and a book-to-bill ratio of 0.9 to 1.0. Backlog as of Sep 29, 2019 was $608.7 million compared with$620.3 million as ofJun 30, 2019.

Segmental Performance

Unmanned Systems: Net sales during the third quarter increased 37.2% year over year to $45.7 million.

Government Solutions: Net sales in the third quarter increased 9.8% year over year to $138.4 million.

Financial Details

As of Sep 29, 2019, cash and cash equivalents were $181 million compared with $182.7 million as of Dec 31, 2018.

Long-term debt, including net of current portion, totaled $294.8 million as of Sep 29, 2019, up slightly from $294.2 million as of Dec 31, 2018.

At the end of first nine months of 2019, cash generated from operating activities was $30.2 million compared with $15.4 million in the year-ago period.

2019 Guidance

For 2019, Kratos maintained its revenue expectation in the range of $720-740 million. The Zacks Consensus Estimate for full-year sales is pegged at $728.7 million lies below the mid-point of the company’s projected view.

Kratos also reaffirmed its 2019 adjusted EBITDA guidance of $71 - $77 million and free cash flow guidance of $10 - $20 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -6.25% due to these changes.

VGM Scores

At this time, Kratos has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.


Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Kratos has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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