Stock Offering. Last week, Kratos announced a public offering of 13.5 million shares at $16.25/sh, raising $219.4 million, or $209 million, net to Kratos after underwriting costs and fees. Underwriters have the option to purchase up to an additional 2.025 million shares, which would increase the amount raised to Kratos to $240 million. Assuming the underwriter exercise in full, the additional 15.5 million shares equate to a 14% increase in the outstanding shares. All shares proposed to be sold are being sold by the Company.Uses. According to the prospectus, the proceeds will be used for "general corporate purposes, including for potential strategic 'tuck-in' acquisitions, to further position us for projected growth from new and anticipated increased production and to facilitate our long-term strategy." The funds will easily cover the $35 million cost of the acquisition of ASC Signal announced last Tuesday.An Indicator of Awards to Come? While Kratos has a number of irons in the fire, could the capital raise be an indicator the Company expects major awards to occur sooner rather than later? Kratos had $159 million of cash and equivalents at the end of the first quarter, seemingly having the availability for potential "tuck in" acquisitions. But if the Company anticipated multiple major awards for production, additional capital may be necessary to ramp up production to fill awards. Earnings Impact. Assuming no changes but the increased outstanding shares, our adjusted EPS estimates would decline by approximately $0.06 for 2020 to $0.26 per share from $0.32. And this does not include any impact from the ASC acquisition. We, however, expect the raise funds to be used, not just sit as cash on the balance sheet. We will update our model once the offering is completed and additional financial details on ASC are released. Maintaining Outperform Rating. We are maintaining our Outperform rating and $23 twelve month price target on KTOS shares. Read More >>