Award. Last night, the Air Force announced Kratos had been awarded a position in support of the Skyborg Vanguard Program. Skyborg is an autonomous attritable aircraft capable of achieving a diverse set of missions to generate massed combat power, including manned/unmanned teaming. Last night's announcement is a key milestone for Kratos in our view.The Details. Kratos, along with Boeing, General Atomics , and Northrop Grumman have each been awarded indefinite-delivery/indefinite-quantity contracts with a shared ceiling of $400 million for all subsequent competitively selected delivery orders in support of the Skyborg program. This was a competitive acquisition with 18 offers were received. In fiscal 2021, the Air Force intends to spend $157.6 million across its three vanguard programs, which includes the Skyborg effort. The service also included an additional $25 million for Skyborg on its unfunded priorities list.A Leg Up? The Air Force has often touted Kratos' XQ-58A Valkyrie as a top contender for Skyborg. The Valkyrie finished its fourth successful flight test in January. With its combination of long-range, high-speed, and maneuverability, along with the capability to deliver a mix of lethal weapons from its internal bomb bay and wing stations, runway-independence and extreme range, we believe the Valkyrie is well position to compete for awards under the contract.Maintaining Outperform Rating. We are maintaining our Outperform rating and $23 twelve month price target on KTOS shares. Read More >>