Kratos Defense & Security Solutions has seen its shares decline by 55% since January, prompting JPMorgan to upgrade the stock from neutral to overweight and set a new price target of $82.
Analyst Seth Seifman acknowledged that while the stock trades at a high forward earnings multiple of 76, it remains attractive due to Kratos' ability to secure and execute new contracts, collaborate with major industry players, and offer cost-effective high-end systems.
Seifman highlighted the importance of continued progress in sales and margins, as well as the need for significant cash outflows to support growth, which are projected to be around $100 million this year, down from $137 million last year. He noted that the market tends to be more forgiving of cash flow pressures when revenue is growing rapidly.
Following the upgrade, Kratos shares rose over 3% in premarket trading, indicating positive investor sentiment