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Kratos Trading Down on Revenue Miss

We would consider adding to our position on a further decline.
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Shares of Kratos Defense & Security (KTOS) aretrading 7% lower on the session, after management postedmixed quarterly results overnight. The company lost $0.02 ashare in the third quarter, which matched expectations. Onthe other hand, revenue fell 15% on the previous year -- to$161.7 million -- falling short of consensus analyst estimates.

Despite the headline sales miss, Kratos continues to seepositive momentum in its unmanned aerial division, which isexpected to be the main driver of future growth. Managementbelieves this unit can ultimately generate more than $100million of recurring annual revenue.

Following the print, we maintain our One rating on theshares, which recently changed hands around $4.65. Thecompany remains 14% above our average cost basis, but we’dconsider adding to our position on a 5% decline from currentlevels.

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