What happened
Actions of Kratos Defense & Security (NASDAQ: KTOS) It was up 10% on Friday after the midsize defense contractor won a seat in the Air Force’s futuristic Skyborg Vanguard Program. Kratos was already in the spotlight this week due to takeover talks, and Skyborg’s victory further highlights the potential of the company’s portfolio.
And that
On Thursday night, the Air Force said that Kratos, Boeing (NYSE: BA), Northrop Grumman (NYSE: NOC), and privately owned General Atomics would advance the competition to develop a new AI-powered drone. The Skyborg program is the Air Force’s attempt to eventually have a fleet of unmanned aerial systems capable of adapting in real time in battle.
Image source: Kratos Defense & Security.
Up to $ 400 million will be shared by the winner or winners to develop prototypes to experiment with small drones capable of performing a variety of missions.
Kratos is already a leader in drones, with his Valkyrie XQ-58A currently in testing with the Air Force and seemingly moving toward eventual order. Skyborg is still years away from potentially moving Kratos’ financial needle, but the company’s inclusion after the field narrowed from 18 proposals is a further endorsement of its technologies.
Now what
Skyborg’s win is solid potential for Kratos, but the move in stocks on Friday was likely based in part on speculation about a defense titan who surprisingly failed to make the cut. Lockheed Martin (NYSE: LMT), creator of many of the Air Force’s manned fighters, was a surprise exclusion from Skyborg.
Lockheed is also the company that was mentioned earlier this week as a potential acquirer of Kratos. Lockheed has more than $ 8 billion to spend, which means he could easily swallow Kratos’ $ 2.15 billion business value. And in interviews, Lockheed Martin CEO James Taiclet has said he is interested in buying “pure game” defense businesses that would broaden the company’s experience in areas where it already has a presence.
Apparently, Kratos met the requirements even before the Skyborg Awards, but with Lockheed Martin excluded, Skyborg is now another reason why a deal for Kratos would make sense.
As I said earlier in the week, deal rumors are no reason to buy a stock, but Kratos, even without an acquisition, has a lot to offer. Skyborg only adds to Kratos’ appeal to both investors and buyers.
