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Kratos Defense (KTOS) Wins Deal for Submarine Ballistic Missile

Kratos Defense & Security Solutions, Inc. KTOS, a technology company that develops products and solutions for the United States National Security, received a $8.6 million contract from the Naval Surface Warfare Center Dahlgren Division (“NSWCDD”). Per the deal, KTOS will have to provide the necessary means for thermo-mechanical and aerothermal ground testing of thermal protection system materials in ballistic re-entry and reentry-like environments in its Kratos SRE business unit in Birmingham, AL.

The five-year agreement contains options with a combined value of up to $46.7 million.

Benefits of the Contract

Under the direct supervision of the NSWCDD Reentry Systems Office, the project will undertake testing of materials supporting technical efforts of the United States and the UK. The assistance includes sample preparation, instrumentation, testing and gathering thermo-mechanical data on materials under extremely high temperatures and high heat flux/shear.

The contract will enable Kratos SRE to create flight hardware for the Navy and test thermal protection materials at external ground testing facilities. In order to effectively test materials in reentry-like environments, the unit requires the special ability to test and gather data at maximum temperatures of 5,500 degrees Fahrenheit.

Growth Prospects

Nations are upgrading their defense capabilities to carry out missions efficiently. In this context, the demand for submarines has increased manifold as part of improving undersea warfare competencies. The demand for submarines is likely to further increase in the future.

Per Allied Market Research, the global submarine market is expected to witness a CAGR of more than 4% over the 2022-2031 period. This rising demand is expected to benefit companies like Kratos Defense. The latest contract win for Submarine Ballistic Missile Reentry Systems is a testament to that.

Prominent defense majors that are likely to enjoy the perks of the expanding submarine market are Northrop Grumman NOC, General Dynamics GD and Huntington Ingalls Industries, Inc. HII.

In 2022, Northrop’s business unit, Northrop Grumman Systems Corp., clinched a contract involving the Columbia and Dreadnought Fleet Ballistic Missile Program. Valued at $458 million, the contract is projected to be completed by Nov 30, 2027.

NOC’s long-term (three to five years) earnings growth rate is 3.8%. It delivered an average earnings surprise of 4.4% in the last four quarters.

In April 2023, Huntington Ingalls’ business segment, Newport News Shipbuilding clinched a modification subcontract from General Dynamics involving Columbia-class ballistic missile submarines.

Valued at $567.6 million, the contract involves the supply of long-lead-time materials and advanced construction activities for the Columbia-class ballistic missile submarine Build II program, the next five submarines in the class.

GD’s long-term earnings growth rate is 8.95%. The Zacks Consensus Estimate for GD’s 2023 earnings per share (EPS) indicates an increase of 3.9% from the previous year’s number.

The consensus mark for HII’s 2023 EPS is pegged at $14.41 per share. The company delivered an average earnings surprise of 8.1% in the last four quarters.

Price Performance

In the past month, shares of Kratos Defense have risen 3% compared with the industry’s 0.2% growth.

Zacks Investment Research
Zacks Investment Research


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Zacks Rank

Kratos Defense currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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