Kratos Defense & Security Solutions

Kratos Defense & Security Solutions Inc earns a 3-star quantitative star rating, reflecting our opinion that this share class is a balanced choice, but prudent investors should consider looking elsewhere. The stock currently trades at a 5% discount to our quantitative fair value estimate of $44.09 per share; however, caution is warranted due to this estimate's high uncertainty rating.

The firm's balance sheet bolsters our valuation estimate. Low leverage mitigates financial risk, potentially boosting a firm's value. Reflecting the firm's leverage is its current ratio of 5.5, which lies in the top 20% globally. We have little concern about this company's ability to cover near-term obligations, thanks to its relatively high current ratio; this could be a compelling signal during times of distress, which contributes to our view that shares are undervalued.

On a different note, the firm's valuation metrics are potentially concerning. A company's valuation metrics provide insights into the market's expectations for its future growth and profitability. The firm's enterprise value to EBITDA ratio of 48.2, for example, lies in the top 10% compared with global peers. This suggests that the value of its enterprise value, or the value of its shares and debt, is a high multiple of the generated EBITDA. Despite our favorable price/fair value ratio, this characteristic is a negative attribute.

The narrow moat rating for this company indicates investors can expect it to generate 10 years or more of excess returns on capital due to its respectable competitive advantages. In addition, the company's moderate financial health score is decent and doesn't seriously concern us with regard to financial distress.