Geopolitical tensions have surged to new heights on following the U.S. strike against a top Iranian General just prior to the weekend. In light of this latest development, international markets have reacted with a significant deal of fear, as was reflected in the oil market in particular.
However, one asset class that surged on Friday were defense stocks, which is understandable considering the looming possibility of a further military escalation. One defense stock that was one of the biggest winners on Friday was Kratos Defense (NASDAQ: KTOS), a $2 billion market cap specialty military equipment developer.
In particular, Kratos specializes in unmanned weaponry as well as energy-directed weapons systems. While the company is relatively small in the grand scheme of defense companies, it currently trades at an extremely pricey valuation near the 150 P/E ratio.
Historically, the company has also been one of the most volatile in the industry, but the company’s signature drone product is expected to be ordered by the Pentagon, something which would send shares surging even more. Although this recent drone strike doesn’t mean that the Pentagon will officially approve of buying Kratos’ drones, speculators are still jumping on the stock regardless.
Besides this newfound speculative fervor, Kratos has made a number of significant announcements over the past month in regard to its recent contract awards. On December 30th and December 31st, Kratos won a $50 million and a $24 million dollar contract to provide unnamed military vehicles. While not a major home run, these small successes build on each other and are good pieces of news for the company regardless.
“The recapitalization of strategic weapon systems to address peer and near peer threats of the United States and its allies is providing a number of large, new program opportunities to our business, including in the Missile System, Missile Defense, Radar, Space, Unmanned and Combat System areas, and we are proud to address mission critical national security priority areas,” said Kratos’ modular systems division president Tom Mills in response to this new contract.
Shares of Kratos Defense ended up surging by 11% on Friday in response to the strike. Most analysts covering the stock have an optimistic assessment of its future. Out of the 10 or so Wall Street analysts reviewing the company, eight of them have a “buy” rating on the stock while only two of them have a “neutral” rating.
In light of this news, however, it wouldn’t be surprising if more analysts give the stock an optimistic assessment in the months to come. Until then, however, it seems that this recent surge is more speculative in nature, and investors might want to target other defense stocks that have more going for them than Kratos.
Kratos Defense Company Profile
Kratos Defense & Security Solutions Inc develops and fields transformative, affordable technology, platforms, and systems. Its segment is Kratos Government Solutions which includes microwave electronic products, satellite communications, training systems, modular systems, and defense and rocket support services and Unmanned Systems segment. The company generates a majority of its revenue from the Kratos Government Solutions segment. – Warrior Trading News
