Analyst Kenneth Herbert of Canaccord continues to see the unmanned target drone business as a tremendous value to Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) moving forward. Herbert is welcoming the growing support or Kratos within the military, as exemplified by a recent visit by Secretary of Defense James Mattis on August 10th to the DIUx office in Silicon Valley. Furthermore, while understanding the fears of investors regarding KTOS FY18 budget, Herbert is confident that company designed aircrafts will draw prime contractors.
Significantly, the US Department of Defense has shown support KTOS’s drone UTAP-22, which recently completed a flight test series for tactical military missions. The analyst believes that the success of the test flights will indeed translate into the production of the UTAP-22 in 2018. Additionally, Herbert notes other KTOS products like the 3 XQ-58A Valkyrie and BQM-167, which are under consideration by the U.S. Air Force Research Lab (AFRL), after the military “indicated confidence in KTOS’s ability to deliver on the range and cost goals under the LCASD program.”
The analyst noted, “We believe the program office is gearing up for initial flight tests with 3 XQ-58A Valkyrie aircraft in mid-2018. While volume production is necessary to hit the $2-3M cost goals, it appears that the AFRL is confident the KTOS design can hit or exceed the 3,000-mile range objectives. This aircraft, if successful, would provide an attritable aircraft at just ~2x the cost of a cruise missile, which also opens up incremental opportunities as part of the armed wingman concept, or for next-generation cruise missile opportunities. Note that the AFRL has also indicated it plans to award R&D contracts in 2017 to support its further research into subsonic cruise missile capabilities.” Moreover, the Herbert opines that KTOS BQM-167 could very well replace the Army’s current drone MQM-107by 2018, noting that the “Army’s inventory of 107s is largely depleted.”
Herbert underlines “The fundamental backdrop, in our view, will continue to drive defense funding for innovation, readiness, and accelerated deployment, all trends that favor KTOS.”
As such, the analysts maintains a Buy rating on KTOS stock with a price target of $15.00 representing a near 23% rise over current trading levels. (To watch Herbert’s track record, click here)
TipRanks analytics showcase KTOS as a Buy. Out of 3 analysts polled by TipRanks in the last 3 months, 2 are bullish, while 1 is sidelined. With a potential downside of 0.74%, the stock’s consensus target price stands at $12.13.