Kratos Expands Turbojet Capacity Amid Demand, but Cash Conversion Remains Key

What happened

Kratos is expanding production of its Spartan turbojet engine to meet rising demand for missiles, loitering munitions, and autonomous defense systems, aligning with its internally funded development strategy. While this capacity build signals growing order expectations, the company's recent 10-Q shows negative free cash flow and DSO rising to 130 days, highlighting that production ramps are consuming cash ahead of funded deliveries. The master report's WAIT rating reflects that valuation at 87.7x EV/EBITDA leaves no margin of safety, and the thesis hinges on funded backlog growing from $1.457B and working capital normalizing. The news does not change the core challenge: large OTA/IDIQ awards must convert into funded task orders, and Valkyrie production remains limited to a variable 24-unit lot. Until the next quarter shows funded backlog inflection and operating cash flow improvement, the stock's momentum narrative lacks fundamental support.

Implication

The turbojet production expansion reinforces Kratos's positioning in growing defense sub-sectors, but investors should note that the company is still in an investment phase with negative free cash flow. The WAIT rating remains appropriate until the next 10-Q confirms funded backlog growth above $1.52B and DSO declines below 125 days. At current multiples, any delay in obligation timing could trigger multiple compression. A prudent entry is near $45, with a trim above $70. The news alone does not justify chasing the stock at current levels.

Thesis delta

The news confirms continued operational progress in propulsion capacity, which supports the long-term revenue thesis but does not alter the near-term need for funded backlog conversion and cash flow inflection. The thesis remains dependent on observable milestones in the next 3-6 months rather than headline-driven momentum. No change to the WAIT rating.