KTOS - Kratos Defense & Security (KTOS) - Skyborg: A Program of Record in 2023?
Additional Funding. Earlier this week, the Fighters and Advanced Aircraft program executive office announced it had recently awarded contract options valued up to $13.2 million to Kratos (XQ-58A) and up to $7 million to General Atomics (MQ-20) to further the development of the Skyborg Vanguard. As with the initial funding from December, Kratos received significantly more funding than General Atomics. Notably, Boeing did not receive any additional funding.Moving to Program of Record? According to Brig. Gen. Dale White PEO for Fighters and Advanced Aircraft, “These contract actions, while tactical in nature, are strategically important to this Vanguard as we continue to discover and learn how we will employ this advance technology in the fight. The team has always been committed to transitioning Skyborg to a program of record, and we’ll be ready in 2023 as the Air Force prepares its FY23 President’s Budget submission early next year.” The next operational exercise is slated to occur in the Fall of 2021.Why Valkyrie is a Better Option, in Our View. In short, Valkyrie satisfies the Primary stated requirements for Skyborg Program Drones including runway independence, affordability, and that the actual to be fielded aircraft exists today, is not a surrogate, and will execute flights under the program this year, not at some future date.Specifics. Valkyrie was designed in 2019 for a loyal wingman role, costs $2-$3 million, top speed is 652 mph, max ceiling is 45,000 ft, is runway independent, and can carry over 500 pounds of bombs. The Avenger is based off a 2009 design that originally contemplated a reconnaissance role, costs $12-$15 million, top speed is 460 mph, ceiling is 50,000 ft., needs a runway, can carry 3,000 pounds. Given you can purchase 5 Valkyries for the cost of one Avenger, the true force multiplier would seem to be Valkyrie, in our opinion.Maintaining Outperform. 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. Given the ongoing momentum across most of it business lines, we believe KTOS shares present a favorable risk/reward opportunity. 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 >>