Kratos Defense & Security Solutions’ stock could be down 55% from its January high, but JPMorgan believes the sell-off is over and now is the time to buy. The bank raised its rating on the stock from neutral to overweight, but lowered its price target to $82. This represents an increase of almost 40% from Thursday’s closing price. Analyst Seth Seifman said in a note that Kratos trades at 76 times forward earnings, noting that while the stock is still not cheap, investors are paying a high premium for high-growth companies in the sector. “Kratos has distinguished itself by winning and executing new work, partnering with industry giants, offering more affordable high-end systems, and investing ahead of need. This is what (the Department of Defense) looks for in contractors,” Seifman wrote. KTOS YTD Mountain KTOS From the beginning of the year to today. However, Seifman said the company still needs to make progress throughout the year in terms of sales and margins, and cash requirements to continue to fund growth remain high. But while the company needs to continue spending, Seifman takes comfort in the company’s improving balance sheet. “Kratos’ expected cash outflow this year is approximately $100 million, lower than last year’s $137 million and reflects capital expenditures and working capital to support expected sales growth,” he wrote. “Cash flow is where Kratos is under the most pressure on its earnings outlook, and this could continue if it continues to win, but the market is more receptive when sales are growing at a strong pace.” Kratos rose more than 3% in premarket trading on Friday.
