Why Kratos Defense Stock Keeps Going Up Today
Key Points
Kratos Defense is building a new factory to expand weapons production.
President Trump has promised more money for defense contractors who invest in production.
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On a red day for the stock market, Kratos Defense & Security (NASDAQ: KTOS) stock just keeps going up.
Shares of the military drones stock marked a third straight day of gains Monday, up 2.5% through 10:15 a.m. ET, after announcing plans to expand production with a new 40,000 square foot factory in Birmingham, Ala.
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President Trump is looking for a few good contractors
Last week, President Trump called for a huge expansion of the U.S. defense budget to $1.5 trillion -- with strings attached. In exchange for sharing in the flood of new money, defense contractors would need to commit to not paying dividends or buying back stock, and using the extra revenue they collect from contracts to make capital investments to expand weapons production.
Kratos already doesn't pay a dividend, however. It's also expanded its share count by 37% over the last five years. (But note: That's not necessarily a good thing).
Kratos invests in defense
Responding most directly to the President's wish list of demands, Kratos now says it's building a new factory -- proof positive of its "long-term commitment to Alabama's skilled workforce, advanced manufacturing base, and role in supporting U.S. defense readiness."
The new factory will help Kratos "rapidly design, develop and field relevant military grade hardware, software and systems," including HORUS high-altitude imaging systems, CRADLE radar communications platforms, and "UltraSpec" inspection technology for advanced composite materials.
Is Kratos Defense stock a buy?
Kratos is making a smart move here to align itself with Trump's defense policy. I do obviously still have concerns about the stock's valuation -- 800 times trailing earnings is a lot to pay for a defense stock -- and its lack of free cash flow.
The company's PR department is firing on all cylinders, however, and the President should be pleased.
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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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