KTOS - Embedded Expectations Analysis - 2021 10 18
Kratos Defense & Security Solutions, Inc. (KTOS:USA) currently trades above historical averages relative to UAFRS-based (Uniform) earnings, with a 50.2x Uniform P/E. At these levels, the market is pricing in bullish expectations for the firm, and management is confident about unmanned systems revenue growth, their Microwave Electronics backlog, and the rollout of their OpenSpace systems.Specifically, management is confident unmanned systems segment revenue grew by 43.6%, their Q2 2021 adjusted EBITDA reached $18 million, and their Q2 2021 consolidated operating income increased from $2.9 million to $3.3 million year-over-year. In addition, they are confident the strong forecasted performance for their Microwave Electronics business is based on a strong current backlog, that the OpenSpace rollout will benefit from the credibility and market competence they already have, and that their rocket system business is supporting the United States Navy's 6th Fleet.
Kratos Defense & Security Solutions is a technology, intellectual property, proprietary product and system company focused on the U.S. and its allies' national security. The company operates in three segments. The Kratos Government Solutions segment is comprised of an aggregation of operating segments, including the company's microwave electronic products, space and satellite communications, modular systems and rocket support operating segments. The Unmanned Systems segment consists of the company's unmanned aerial system and unmanned ground and seaborne system businesses. The Public Safety and Security segment provides independent integrated solutions for government and commercial applications.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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