KTOS - Kratos Defense Security (KTOS) - Continuing Resolution Likely to Impact 2022 Results But Compelling Risk Reward

CR. The Federal government continues to operate under a Continuing Resolution budget, now expected to last at least through February 18th. According to Federal News Network, the Senate has not brought any appropriation bills to the floor, and lawmakers are still trying to figure out the top line spending figure. Some have expressed concern that the process to appoint a new Supreme Court justice could push other work further out. Operating under a CR prevents new-start programs and multiyear activities.But This Too Will Pass. With a top Navy official last week noting that the Navy could face a half-billion dollar shortfall for its ballistic missile submarine program, alone, if the CR is not resolved, we believe pressure will bear on Congress to do its job and pass a budget.Well Positioned. With leading market positions in unmanned systems and space and satellite communications, two key growth areas for the Department of Defense, we continue to believe Kratos will capitalize on an expanding total addressable market, now in the tens of billions of dollars.Projections. With programs being pushed to the right, we have moderated our projections for 2022. For the first quarter we are projecting revenue of $190 million and adjusted EPS of $0.05. For the full year, we expect to see sequential improvement, with full year revenue now at $874 million, adjusted EPS of $0.37, and adjusted EBITDA of $87 million.Compelling Risk/Reward. We believe the current price level presents investors with a compelling risk/reward opportunity. We continue to believe it is a question of when, not if. We are maintaining our Outperform rating and $30.00 12-month price target. We continue to believe in the long-term prospects of Kratos and believe the Company to be well positioned to capitalize on new and emerging trends in defense. Read More >>