Kratos Defense & Security Solutions, Inc (NASDAQ:KTOS) is off more than 7% on Monday morning after a downgrade by KeyBanc put the skids to KTOS’ hot 2016 run.
Analyst Michael F. Ciarmoli believes KTOS stock has simply gotten too hot of late.
“KTOS shares have surged 66% since reporting 2Q16 results (S&P 500 up 0.4% over the same time period) as solid results, a guidance lift, and increased optimism surrounding recent unmanned contract wins have provided much needed momentum,” Ciarmoli says.
Now, Ciarmoli believes Kratos is “entering a ‘show me’ period,” with things like contract wins and EBITDA generation considered “paramount.”
The result? Ciarmoli downgraded KTOS shares from “Overweight” to “Sector Weight,” and he removed the price target altogether.
As Ciarmoli said, Kratos has surged forward since posting excellent Q2 numbers at the beginning of the month. Revenues of $168.2 million were up 5% year-over-year, and the company even managed surprise “pro forma” earnings of 1 cent per share. Wall Street was expecting 7 cents per share in red ink.
Among other highlights were big revenue gains in the satellite, technology and training division, as well as unmanned systems.
There were a couple of hangups, most notably lowered EBIDTA guidance on the second-quarter conference call. Kratos was looking for $45 million in full-year EBITDA when it guided on its Q4 2015 call, but lowered its expectations to $42 million on that front.
