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JonesResearch initiated coverage of Kratos stock with a buy today.
Kratos is growing nicely but profits look weak.
Kratos Defense & Security Solutions (NASDAQ: KTOS) stock gained 9.7% through 11:45 a.m. ET, Monday after JonesResearch analyst Josh Sullivan initiated coverage of the defense stock with a buy rating and a $150 price target.
If Sullivan is right, Kratos stock could nearly double this year.
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Image source: Getty Images.
There's not much detail available on the new rating, other than the fact that it happened. Neither TheFly.com nor StreetInsider.com, my two go-to sources for ratings news, know anything more than the rating and the price target.
What we do know about Kratos comes primarily from the company's Nov. 4 earnings report on fiscal Q3 2025 results. In that report, Kratos said sales grew 26% year over year, with 36% growth in sales of "unmanned systems" -- i.e., drones. Kratos also reported a quarterly book-to-bill ratio of 1.2, foreshadowing even stronger sales growth to come, and raised its guidance for fiscal 2026 organic revenue growth to 15% to 20%, accelerating to 18% to 23% in fiscal 2027.
The company was profitable in Q3, earning $0.05 per share, and has earned $0.10 per share so far this year, but Kratos's free cash flow is negative -- and management expects it to remain negative through the end of this year.
Is that good enough to drive Kratos stock from $79 (Friday) to $150 (a year from now)? I'm not sure it is. 15%, 18%, 20%, or 23% would all be slower growth rates than what Kratos produced in Q3. And if the company's only earning, say, $0.20 a year, that's a P/E ratio of more than 400x at the stock's current price.
JonesResearch may think 400 times earnings is a reasonable price for a growth stock with slowing growth? I don't.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kratos Defense & Security Solutions. The Motley Fool has a disclosure policy.
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