Editor's Note

You cannot fight a war today without state of the art equipment. Kratos is building those drones and aircraft.


KTOS - Fratos Defense and Security - Company Profile

Kratos Defense & Security Solutions, Inc. provides mission critical products, solutions, and services in the United States. The company operates through three segments: Kratos Government Solutions, Unmanned Systems, and Public Safety & Security. The Kratos Government Solutions segment offers microwave electronic products; satellite communications; technical and training solutions; modular systems; and defense and rocket support services. The Unmanned Systems segment provides unmanned aerial, ground, and seaborne, as well as command, control, and communications systems. The Public Safety & Security segment designs, engineers, deploys, operates, integrates, maintains, and operates security and surveillance solutions for homeland security, public safety, critical infrastructure, government, and commercial customers. The company serves national security related agencies, the department of defense, intelligence agencies, and classified agencies, as well as international government agencies and domestic and international commercial customers; and critical infrastructure, power generation, power transport, nuclear energy, financial, IT, healthcare, education, transportation, and petro-chemical industries, as well as government and military customers. Kratos Defense & Security Solutions, Inc. was founded in 1994 and is headquartered in San Diego, California. Company description from FinViz.com.

Earnings Feb 26th.

We played Kratos several months ago when they were just beginning to win contracts for their target drones. Now they are winning contracts and have vehicles in advanced tests as attack drones that can fly with F16s and F35s and function as ground attack aircraft and aerial defense aircraft.

Kratos has found a niche in the unmanned aircraft business. Last week they were chosen to participate in a multi company award for $998 million for the Air Force TETRAS program. This is to develop a multi function drone that will be used for Command, Control, Communications, Computer Intelligence, Surveillance and Reconnaissance or C4ISR. The military sure loved their alphabet soup names.

Also last week, Kratos completed the first milestone in the Enterprise Ground Services (EGS), Command and Control System-Consolidated (CCS-C) and the transition of the Military Satellite Communications (MILSATCOM) satellite C2 system into the EGS. I don't know what all of that means but it is part of the Air Force Enterprise Space Battle Management Command and Control system (BMC2) currently being developed.

The key point here is that Kratos has been winning these awards nearly every week and they are rapidly integrating themselves into every phase of the military's attack and defense communications network in addition to their highly intelligent drone division.

The prior week Kratos announced that numerous high performance unmanned drone aircraft had completed multiple missions for customers around the world in tactical and threat representation missions. They do sell to other customers than the US military.

With Kratos rapidly advancing their capabilities and winning larger and larger contracts, they are likely to seen even more business once the defense funding is approved by congress.

Shares did NOT decline in the market selloff last week. I am recommending an options only position using a longer term option and we will hold over their earnings on Feb 26th.

Buy May $12.50 call, currently $1.20, no initial stop loss because of market volatility.


No New Bearish Plays