Kratos (KTOS) wins combat drone modification contract

Kratos Defense and Security Solutions, Inc. KTOS recently landed a modification contract for the purchase of 65 BQM-177A (SSAT) subsonic aerial targets. Of these 65 aerial target drones, 50 drones will be supplied to the US Navy, seven to the government of Japan and eight to the government of Saudi Arabia.

Worth $ 50.9 million, the latest contract won is Kratos’ third consecutive full production contract for the US Navy. The agreement was awarded by Naval Air Systems Command, Patuxent River, MD.

Significance of the BQM-177A subsonic aerial target

Kratos is a leading manufacturer of high performance aerial target drones for the military. Among several drones offered by the company, its BQM-177A is the next generation SSAT of the US Navy.

The BQM-177A provides formidable threat emulation for air-to-air engagements. Its aerodynamic design and unmatched performance capabilities make it the best choice for highly dynamic, highly subsonic, sea-foaming anti-ship cruise missile threat emulation. Skimming altitude as low as 6.6 feet, the BQM-177A is second to none when it comes to providing realistic anti-ship missile threat emulation.

Such remarkable features that could mimic existing and emerging threats must have attracted the US Navy and resulted in multiple orders for Kratos. KTOS expects to stay on SSAT’s growth path and anticipates an increase in the number of contracts won. This, in turn, is expected to bolster its revenue from the drones business line.

Growth prospects of the aerial target drone

The growing importance of aerial target drones is a result of their function as an unmanned aerial vehicle that can be controlled remotely. In addition, these provide flexibility for any defense system to reach any danger zone, with negligible risk and minimal cost.

Therefore, countries around the world have also increased their defense spending for an effective and efficient aerial drone system to fortify their military arsenals. According to the report by Emergen research, the military drones market is expected to grow at a CAGR of 10.9% during the period 2020-2028. In this regard, Kratos, as a leading aerial target drone manufacturer, embodies significant growth prospects in the aforementioned market.

Defense majors likely to benefit from the growth prospects of the military drones market are:

Lockheed MartinThe LMT Indago vertical take-off and landing is a small unmanned aerial system (UAS) that provides expeditionary intelligence, surveillance and reconnaissance (ISR) applications. Combined with the aircraft’s silent acoustic signature, the high-resolution camera systems provide users with incredible zoom capability to accurately identify people, objects, vehicles and weapons.

Lockheed Martin’s long-term profit growth rate is set at 3.6%. LMT shares have returned 1.9% in the past three months.

Northrop GrummanThe NOC RQ-4 Global Hawk UAS is the premier provider of persistent ISR information. Capable of flying at high altitudes for over 30 hours, Global Hawk is designed to collect near real-time, high-resolution images of vast expanses of land in all types of weather, day or night.

Northrop Grumman has a long-term profit growth rate of 8.9%. NOC investors have gained 26.4% over the past year.

Airbus GroupThe UAS EADSY increasingly integrates into airspace, providing unmatched ISR data for military and civilian applications. Its European system of medium-altitude, long-endurance remotely piloted aircraft is capable of carrying out intelligence, surveillance, target acquisition and reconnaissance missions.

Zacks’ consensus estimate for Airbus Group earnings in 2021 shows 3.9% year-over-year growth. EADSY shares have returned 16.3% in the past year.

Price movement

Over the past year, Kratos shares have fallen 29.7% against industry growth of 10.7%.

Image source: Zacks Investment Research

Zack Rank

Kratos currently wears a Zacks Rank # 3 (Hold). You can see The full list of Zacks # 1 Rank (Strong Buy) stocks today here.

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