Kratos Defense & Security Solutions, Inc (KTOS): Play Offense With This Defense Company

It has a remarkable track record of profitability and positive free cash flow in every single year in the past decade. With so much uncertainty over the sector, shareholders have called for a return of capital and CACI International Inc (NYSE:CACI) responded with a share repurchase program last year. According to my reading of management comments on its most recent earnings conference call, a dividend initiation is unlikely in the short-term, while share repurchases will be considered in view of valuations and the availability of M&A opportunities.

Not all areas will suffer from the same degree of reduction in defense budgets. In particular, cyber security remains the priority of the U.S. government, given the spate of cyber attacks. Mantech International Corp (NASDAQ:MANT) is well-positioned to benefit from this, given its long history and track record, having started its cyber practice more than a decade ago. Similar to CACI International Inc (NYSE:CACI), ManTech International’s business is free cash flow generative. It initiated dividend payments in 2011 and currently sports a 3% forward dividend yield.

Conclusion

Like all investors, I want the best of both worlds: upside potential and downside protection. For Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS), the upside comes from its competitive edge as the single awardee or preferred contractor in many contracts, which puts it in a position to win more contracts in the current climate. If current sentiment shifts and momentum slows down, Kratos’ diversification in terms of clients and contracts will help mitigate any negative impact.

Mark Lin has no position in any stocks mentioned. The Motley Fool owns shares of ManTech International.

The article Play Offense With This Defense Company originally appeared on Fool.com.

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