Acquisition Rumors. Yesterday, various news sources discussed Lockheed Martin as a potential acquiror of Kratos. According to the reports, Lockheed Martin's new CEO James Taicliet said in a Bloomberg interview published after the company's earnings call that the company's focus for M&A will be on "pure-play defense," although the collapse in air travel has him "shying away" from any expansion into commercial aerospace, Dealreporter said. Back in mid-2019, the news service previously said Lockheed "could be a natural suitor for companies like Mercury Systems (MRCY) or Kratos Defense & Security Solutions (KTOS)," the report noted, adding that based on Taicliet's comments that Kratos "may be the more likely of the two."Our Thoughts. Kratos has long been the subject of acquisition rumors and we do expect the long-term outcome for the Company is to be acquired by one of the Primes. A year ago, KTOS shares were above $24. Today, awards are closer but the stock is only at $17.85. We think management would need to see a price in excess of $25 to seriously consider being acquired. Nonetheless, we believe management is laser focused on the business at hand, with the recent capital raise an indication that major production awards may come sooner rather than later. There is a lot of potential at Kratos, in our view.Likely Names. With its key unmanned systems programs near award, we believe this segment could experience significant increases in revenue. Potential acquirers could include any of the major military aircraft manufacturers, such as General Dynamics, Boeing, Northrup Grumman, or Lockheed, as Kratos' drones would then potentially get a big leg up toward securing lucrative contracts.Maintaining Outperform Rating. We are maintaining our Outperform rating and $23 twelve month price target on KTOS shares. Read More >>