Kratos Defense & Security Solutions (KTOS) remains well positioned to benefit from defense spending priorities, despite potential incremental top-line budget pressure and increased uncertainty around budget timing, RBC Capital Markets said Monday in an emailed note.
The company's Q3 results were mixed, with revenue of $472 million in line with expectations, while adjusted EBITDA of $50.9 million beat estimates by 15%.
The company expects to deliver 3,000 turbojet engines in 2027, with most deliveries scheduled for Q3 and Q4. Management identified supply chain as a lingering execution risk but said it is building in a production buffer, according to the note.
The $130 million to $140 million working capital outlay creates meaningful cash flow pressure, with investors looking for evidence that Kratos can deliver on its back-half weighted schedule. The path to positive free cash flow in 2029 also remains in focus, the brokerage said.
Kratos expects 2027 revenue of $2.15 billion and adjusted EBITDA of $235 million at the midpoint, below consensus of $2.22 billion and $242 million, respectively.
RBC kept an outperform rating on Kratos with a price target of $55.
Shares of Kratos rose more than 7% in Monday trading.
Price: 37.89, Change: +2.79, Percent Change: +7.95
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