This little-known drone stock is poised to rally more than 56%, Raymond James says

Published Fri, Apr 26 202411:21 AM EDTUpdated Fri, Apr 26 202412:44 PM EDT

Kratos Defense & Security Solutions is seeing its business thrive amid accelerating defense spending stemming from global conflicts, according to Raymond James. Analyst Brian Gesuale upgraded shares from outperform to a strong buy rating. He also raised his price target by $7, or 35%, to $27, suggesting the stock could climb 56% from Thursday's close. Kratos climbed as much as 2.7% in early trading Friday. Through Thursday, shares have fallen roughly 15% year to date, partly because investors wanted to see faster drone production runs, the analyst said. "Kratos provides content on most of the major western air defense systems," Gesuale said in a report to clients after the market closed Thursday. "While the consumables in Israel and the recently passed Supplemental Security Aid package [to Ukraine, Israel and Taiwan] will benefit KTOS, we believe we are in the very early stages of a generational upgrade to Air Defense systems globally." This upgrade cycle, the analyst said, is fueled by advances in munitions, defensive technology, counteroffensive innovation, the potential risk of expanding global conflict zones and uncertainty surrounding the U.S.-NATO alliance in this year's U.S. presidential election cycle. Gesuale noted that the adoption of drone and "loitering" munitions has accelerated given the success of Switchblade and other technologies in the field, and that the Israel-Hamas war has led to "massive strides" in air defense technology, seen in the success of Israeli systems such as Iron Dome, David's Sling and Arrow Systems. Kratos will benefit from Congress' $26 billion bill to send additional wartime assistance to Israel, passed late Tuesday, which Gesuale said supports the restocking of Iron Dome, Arrow, David's Sling and other air defense programs. At the same time, NATO's orders for Multiple Air Defense Systems, $11 billion of which require Kratos materials over several years, could also boost the stock, he added. KTOS YTD mountain Kratos shares over the past year.