Why Kratos Defense Stock Popped, Then Dropped
Key Points
Kratos will begin Valkyrie test flights using Airbus's MARS AI drone software this year.
Kratos builds the drone. Airbus builds the software.
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After slumping with the rest of the stock market Friday, Kratos Defense & Security (NASDAQ: KTOS) stock finally jumped 3.3% Monday morning (through 10:20 a.m. ET) in response to Friday's news: Kratos is collaborating with Airbus (OTC: EADSY) to develop a collaborative combat aircraft -- a near-full-sized, uncrewed fighter jet -- for the Luftwaffe.
That's the good news. The bad news is that soon after the jump, Kratos stock gave back almost all its gains. As of 11:20 a.m. ET, the stock is now up just 0.2%. Why?
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Image source: Kratos Defense.
Kratos and Airbus
Kratos and Airbus are building the new Uncrewed Collaborative Combat Aircraft (UCCA) for the German Air Force, and also developing a Multiplatform Autonomous Reconfigurable and Secure (MARS) artificial intelligence system to drive the drone. Kratos's own Valkyrie will be the basis for the former, while Airbus is taking the lead in developing MARS.
Kratos describes Valkyrie as having an 8.2-meter wingspan and 9.1-meter length, boasting a 5,000-kilometer range at altitudes up to 45,000 feet. (Meters and feet. That's how you know this is a European-American collaboration!) At these dimensions, the Valkyrie resembles a World War II era McDonnell XF-85 Goblin, the smallest (manned) fighter jet ever to fly. Valkyrie is considerably smaller than modern crewed fighters -- but it works, having first flown in 2019 and flying "regularly" ever since, says Kratos.
The first flight of the new Airbus Valkyrie variant is scheduled for this year. It's designed to fly as a loyal wingman alongside German Eurofighters built by Airbus, BAE Systems, and Leonardo.
What does this mean for Kratos stock?
Valued at more than 670 times trailing earnings, Kratos is valued for huge growth. A partnership with Airbus could help deliver that. It's only two drones being tested for now.
Fingers crossed that more will follow.
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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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