Why Kratos Defense Stock Popped 5.5% Today

Core Viewpoint - Kratos Defense & Security Solutions has secured a significant defense contract, but its stock valuation remains high despite recent gains [1][2]. Group 1: Contract Details - The U.S. Air Force awarded Kratos a $79.9 million contract for 60 BQM167A target drones, representing approximately 7% of the company's annual revenue [2]. - This contract is part of a five-year supply agreement potentially worth up to $374 million, with the current order being the 20th lot, indicating the contract is nearing completion [3]. Group 2: Financial Performance - Kratos reported trailing 12-month earnings of $10 million, which is insufficient to support a market capitalization of $3.4 billion [4]. - The company's free cash flow is notably low at $2.6 million, leading to a price-to-earnings-to-growth (PEG) ratio of about 340 and a price-to-free cash flow ratio in the four figures [4]. Group 3: Future Expectations - Analysts predict strong earnings growth, forecasting profits to triple over the next two years, which is critical for justifying the high stock valuation [5].