Monday, Jefferies maintained a Hold rating on Kratos Defense (NASDAQ:KTOS) & Security (NASDAQ:KTOS) shares, affirming a $12.00 price target. Kratos' KTT subsegment, accounting for approximately $60 million in annual sales or 7% of the company's total, is set to develop a supersonic engine in collaboration with GE Additive and StandardAero. This development is part of a partnership with Boom Supersonic, a startup focused on supersonic jet travel.
The engine will be designed for Boom's Overture jet, a supersonic airliner with a capacity of 65-88 seats and the ability to reduce transatlantic flight times to around 3.5 hours. Notably, the engine's development will be fully funded by the customer, sparing Kratos from any internal investment. This aligns with the company's strong financial position, as InvestingPro analysis shows Kratos maintains more cash than debt and boasts a healthy current ratio of 3.22.
The KTT subsegment's involvement includes leading the engine design and constructing some of the initial engines for the aircraft. This segment of Kratos is known for producing engines for cruise missiles and powered munitions, including those for hypersonic missile vehicles, and has a role in the B-52 Commercial Engine Replacement Program.
Boom Supersonic is currently working on the XB-1 demonstrator to inform the design of the Overture, which aims to operate at speeds of Mach 1.7 and reach altitudes of 60,000 feet. The Overture is intended to cater to the business class market segment for transatlantic flights, boasting a range of 4,250 nautical miles.
The development timeline for the Overture jet is ambitious, with a rollout planned for 2025, a first flight in 2026, and an expected entry into service by 2029. The aircraft is currently in the prototype phase, with significant progress made in wind tunnel testing. This project comes as Kratos demonstrates strong momentum, with revenue growing at 11.3% year-over-year.
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The Overture has already attracted interest from major airlines, with American Airlines (NASDAQ:AAL) and United Airlines (UAL) placing orders, and Japan Airlines (JAL) and Virgin Atlantic securing pre-order agreements. The supersonic jet is listed at a price of $200 million.
In other recent news, Kratos Defense & Security has secured significant contracts and maintained strong financial growth. The company was chosen for a 5-year, $1 billion prime contract for the MACH TB, a National Security Technology Accelerator initiative contracted by the U.S. Navy. Kratos is also leading a team, including subcontractors such as Leidos and Booz Allen (NYSE:BAH), for systems engineering and other crucial functions. Despite the scale of the contract, Raymond (NS:RYMD) James has kept the financial projections unchanged.
Additionally, Kratos has been awarded a $6.5 million contract by the Defense Advanced Research Projects Agency (DARPA) for hypersonic flight testing. Jefferies, an investment banking firm, maintained a Hold rating on Kratos shares, increasing the price target from $25.00 to $30.00, indicating a positive outlook on the company's growth potential in the defense sector.
In terms of financials, Kratos reported robust third-quarter revenues in 2024, reaching $275.9 million, marking an 8.7% organic growth in unmanned systems and surpassing estimates. The company is also projecting a 10% year-over-year revenue growth for 2025.
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