We recently compiled a list of the 8 Best Military Drone Stocks To Buy According to Analysts. In this article, we are going to take a look at where Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) stands against the other military drone stocks. We also dive into unmanned aerial vehicle (UAV) industry trends.
Demand for military drones has surged over the last few years amid deadly escalations breaking out in different parts of the world. These unmanned aerial vehicles (UAV) were a prominent feature in the 2020 conflict between Azerbaijan and Armenia in the Nagorno-Karabakh region. They have also been clouding the skies in Kyiv, Kharkiv, and Borodyanka as the Russia-Ukraine war approaches the 1000-day mark, with no immediate end in sight.
READ ALSO: 10 Countries with the Most Military Drones in the World and 7 Most Undervalued Defense Stocks To Buy According To Analysts.
UAVs offer an unprecedented bird’ s-eye view of the battlefield, making it difficult for enemy targets to move and hide from the theatre of war. An increasing number of countries are actively deploying military drones within and outside their borders for intelligence, reconnaissance, surveillance, and target operations, in what is being seen as the arrival of a new threat in the aerial defense space.
According to a report, the drone industry was valued at $30.2 billion in 2024 and is projected to reach $48.5 billion in 2029, at a CAGR of 9.9% during this period. This has already been a healthy year for the drone market. For perspective, a major ETF issued by AdvisorShares has gained 15.46% YTD, outperforming the broader market by two percentage points. The market’s growth is fueled by the need for enhanced aerial security and the advancements in technologies being made in the UAV industry.
There is active work ongoing in building drone defense systems as well to guard countries against the threats posed by UAVs. In early October this year, the Department of Defense (DOD) awarded a $250 million contract to Anduril Industries to counter drone attacks against American forces. Under the contract, the US will receive 500 recoverable Roadrunner interceptors.
Roadrunners are reusable drones that can intercept incoming drones or land back on the ground if they are not engaged. Anduril did not name the DOD customer for security concerns, however, the company stated that the contract would serve the American military in ‘priority regions where U.S. forces face significant UAS threats’.
Anduril Industries also recently unveiled a new, autonomous drone called Bolt after the success of similar products in Ukraine. The vertical takeoff and landing (VTOL) autonomous vehicle will provide militaries with capabilities for a range of missions, from ISR to search and rescue. The drone also comes with a munition variant, called Bolt-M, to arm ground troops on the battlefield by making quick and precise strikes.
Compared to the use of costly and vulnerable fighter jets, loitering munitions after surveying the area through unmanned aerial vehicles has proven much more effective in the ongoing war between Russia and Ukraine, resulting in a surge of demand for military drones. With that said, let’s shift our focus now on the best military drone stocks to buy according to analysts.
Methodology
We sampled stocks from ETFs with military drone exposure and our own previous related articles on the subject. Then we narrowed down the list to the eight top stocks preferred by analysts, basing our rankings on their median share price upside potential and the number of analysts who had made projections about these companies, as of October 25, 2024.
We first ranked the stocks on each of these two metrics and followed it up by assigning the two metrics their respective weights, which were 40% for the median share price upside potential and 60% for the analyst count. This was followed by calculating the weighted ranking for each metric, and then aggregating the two to get an overall weighted ranking score. The 8 Best Military Drone Stocks To Buy According to Analysts are ranked in descending order of these weighted rankings.
Since only a few public companies are operating in the military-drone industry, we did not have a lot of choices for stocks, and one of these stocks had a negative median upside so we ranked it on a positive mean upside instead, which was based on the contribution of 5 analysts. This stock’s mean share price upside potential was assigned a weightage of 40% as well.
For added perspective, we also mentioned the sentiment of the hedge funds towards each stock from Insider Monkey’s database of 912 hedge funds for the second quarter of 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A technician in a laboratory carrying out research and development of microwave electronics.
Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS)
Median Share Price Upside Potential: 4.38%
Total Analysts: 10
Number of Hedge Fund Holders: 24
Weighted Ranking: 6
Kratos Defense & Security Solutions is an American company that develops and fields transformative and affordable products and platforms for national security needs. It is involved in various technological areas, such as unmanned systems, C5ISR, satellite communications, warfighter training, and combat systems.
The company has made notable strides in the military drone industry. In April this year, Kratos announced that its Unmanned Systems Division successfully demonstrated electronic warfare capabilities for the XQ-58 Valkyrie. The unmanned combat aerial vehicle is able to fly in concert with two F-35 fighter jets and deliver integrated electronic attacks.
The demonstration completed Phase 1 of the United States Marine Corps’ Penetrating Affordable Autonomous Collaborative Killer – Portfolio (PAACK-P) program and followed the award of a $22.9 million “Phase 2” contract modification in December for further engineering development and flight test demonstrations.
Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) declared its financial results for Q2 2024 on August 7. The company posted a revenue of $300.1 million during the quarter, exceeding its estimated range of $265 million to $280 million. This was driven by better-than-expected performances across most of its business segments, especially the unmanned systems, turbine technologies, microwave products, and C5ISR businesses. It generated around $17.4 million of the overall revenue from delivery on an international Middle Eastern drone program, which was initially slated for Q3.
Adjusted EBITDA stood at $29.9 million. Net income for the quarter was recorded at $7.9 million, translating to a GAAP EPS of $0.05 and an adjusted EPS of $0.14. Kratos’ Unmanned Systems Segment (KUS) posted revenues of $85.8 million, compared to $52.1 million during the same quarter in 2023, resulting in an organic revenue growth of 61.8%, driven by increased domestic target drone production and delivery of a drone program in the Middle East.
Owing to increased demand for UAVs, Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) is expanding its Oklahoma drone manufacturing capabilities and is also considering adding another additional facility. The company currently has an estimated $12 billion worth of opportunity pipeline, which includes classified opportunities in its Unmanned Systems business and space, cyber, and training businesses.
The management has reaffirmed its 2024 financial guidance and its forecasted future year-over-year organic growth rate of 10%. Wall Street analysts remain bullish on the stock and have consensus on its Buy rating. Kratos is one of the best military drone stocks to buy according to analysts.
Overall KTOS ranks 7th on our list of the best military drone stocks to buy according to analysts. While we acknowledge the potential of KTOS as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than KTOS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
