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A month has gone by since the last earnings report for Kratos (KTOS). Shares have lost about 8.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Kratos due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Kratos Q4 Earnings Miss Estimates, Revenues Rise Y/Y
Kratos Defense reported fourth-quarter 2020 earnings of 8 cents per share, which missed the Zacks Consensus Estimate of 10 cents by 20%. The bottom line also declined 11.1% from the prior-year quarter’s earnings of 9 cents per share.
Barring one-time adjustments, the company reported GAAP earnings of 62 cents per share for the fourth quarter of 2020, compared with 3 cents recorded in the year-ago quarter.
For 2020, the company reported adjusted earnings of 33 cents per share, compared with 30 cents in 2019.
Total revenues amounted to $206.4 million in the fourth quarter, which missed the Zacks Consensus Estimate of $219 million by 5.6%. Revenues however improved 11.5% from $185.1 million reported in the year-ago quarter. The year-over-year upside was led by organic growth in Kratos Unmanned Systems, Space and Satellite, Microwave Products, as well as Defense and Rocket Support Systems businesses.
For 2020, the company recorded revenues worth $747.7 million, compared with $717.5 million generated in 2019.
Kratos’ operating expenses amounted to $45.3 million in the quarter compared with the prior-year quarter’s $39.1 million. Selling, general and administrative expenses were up 19.7%, while research and development expenses soared 52%.
The company reported fourth-quarter 2020 operating income of $9 million compared with operating income of $9.3 million for the fourth quarter of 2019.
Kratos reported fourth-quarter 2020 bookings of $254 million and a book-to-bill ratio of 1.2 to 1.0, with a backlog of $922.2 million as of Dec 31, 2020.
Unmanned Systems: Revenues during the fourth quarter improved 29.2% year over year to $49.5 million.
Government Solutions: Revenues in the fourth quarter grew 6.9% year over year to $156.9 million.
As of Dec 31, 2020, cash and cash equivalents were $380.8 million compared with $172.6 million as of Dec 31, 2019.
Long-term debt, including net of current portion, totaled $301 million as of Dec 31, 2020, up from $295.1 million as of Dec 31, 2019.
At the end of 2020, cash generated from operating activities was $44.7 million compared with $28.9 million in 2019.
For first-quarter 2021, Kratos expects to generate revenues in the range of $185-$195 million. The Zacks Consensus Estimate for first-quarter revenues is pegged at $191.6 million, which lies above the midpoint of the company’s projected range.
For 2021, the company expects revenues in the range of $810-$850 million. The Zacks Consensus Estimate for full-year revenues is pegged at $842.6 million, which lies above the midpoint of the company’s projected range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -80% due to these changes.
Currently, Kratos has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Kratos has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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