Why Kratos Defense & Security Solutions Is Soaring Today
Key Points
The events of this past week suggest that the end of the conflict in Iran isn't in the immediate future.
An analyst has a more optimistic outlook for Kratos Defense stock.
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Starting the first full week of trading on a positive note, shares of Kratos Defense and Security Solutions (NASDAQ: KTOS) raced higher this morning, outpacing the rise in the S&P 500. With the conflict in Iran continuing without an end in sight, and an analyst presenting a more auspicious outlook for Kratos Defense stock, investors have been motivated to click the buy button on the defense contractor's shares.
As of 1:05 p.m. ET, shares of Kratos Defense are up 7.8%, retreating slightly from an earlier 8.7% rise.
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As the conflict in Iran persists, investors recognize a buying opportunity
Despite some indications last week that the fighting in Iran could be winding down, the ongoing military action and aggressive rhetoric from President Trump this past weekend suggest that the end is, in fact, not on the horizon. As a result, the United States will continue to need the missiles and drones Kratos Defense produces.
The second, and more direct, catalyst for the stock's rise today is an upgrade from Jefferies analyst Sheila Kahyaoglu, who now rates the stock a buy with an $85 price target. According to Thefly.com, Kahyaoglu estimates that the company has a $14 billion opportunity in solid rocket motors and hypersonics in its government solutions business.
With Kratos Defense stock last closing at $67.31, Kahyaoglu's price target implies upside of more than 26%.
Value investors will want to think twice before picking up shares
While there's a clear allure to Kratos Defense stock right now, prospective investors need to recognize that shares are trading at a premium. Whereas the stock's five-year average cash flow multiple is 39.9, Kratos Defense stock is currently changing hands at about 88.3 times operating cash flow.
For those eager to gain exposure to the defense industry and who desire a more conservative opportunity, a defense ETF may be a better option.
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Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group and Kratos Defense & Security Solutions. The Motley Fool has a disclosure policy.
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