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Actionable news in KTOS: Kratos Defense & Security Solutions, Inc.,

Don't Ignore The Cracks In The Kratos Story

Summary

Management guidance is unreliable.

Actual money-making UAV and LaWS awards are still years away if they ever materialize.

Current trading value gives 100% credit to programs that aren't written into the defense budget yet.

Running out of money fast - will need dilutive equity issuance.

Summary

I can see on this board that there are a lot of big fans of Kratos Defense (NASDAQ:KTOS), and I've been following them for a while. Yes, folks can agree or disagree there's lots of sexy blue sky potential here for advanced weaponry sales. But, at the risk of getting truckloads of negative feedback, I think it's worth taking a second look at some of the issues here, which folks might want to consider given the price spike. I'll try to keep it punchy, as I'm guessing people just want the facts, fast.

1. Eric DeMarco did not raise but lowered guidance on Q2 call

Previous guidance was given on the Q4 call when he said revenue and EBITDA would be the same as 2015: $657 mm revenue and $45 mm EBITDA. Even though he called it a raise, his new guidance is $659 revenue (+2 more than before) and $42 mm EBITDA (-2 less than before). EBITDA is the more important figure in my book. Check out the last few years, and you'll see he has a habit of cutting guidance as the year goes on.

2. Book-to-bill < 1, except in Satellite segment

Book-to-bill got worse to 0.8 to 1, meaning they're chewing up current backlog at the expense of future revenue. (Satellite has a ratio of 1.1 to 1.) In other words, for every $ of revenue they're pulling in right now, they're taking away from a $ of revenue in the future. Not sustainable.

3. UAV projects are just R&D, and...


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