Financial Review: Kratos Defense & Security Solutions (NASDAQ:KTOS) & Mercury Systems (NASDAQ:MRCY)

Mercury Systems (NASDAQ:MRCY) and Kratos Defense & Security Solutions (NASDAQ:KTOS) are both aerospace companies, but which is the superior investment? We will compare the two businesses based on the strength of their valuation, institutional ownership, analyst recommendations, profitability, earnings, dividends and risk.

Earnings & Valuation

This table compares Mercury Systems and Kratos Defense & Security Solutions”s revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Mercury Systems	$912.02 million	5.70	-$37.90 million	($0.53)	-163.51
Kratos Defense & Security Solutions	$1.14 billion	14.57	$16.30 million	$0.13	747.77

Kratos Defense & Security Solutions has higher revenue and earnings than Mercury Systems. Mercury Systems is trading at a lower price-to-earnings ratio than Kratos Defense & Security Solutions, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Mercury Systems and Kratos Defense & Security Solutions’ net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Mercury Systems	-3.23%	1.28%	0.76%
Kratos Defense & Security Solutions	1.56%	3.14%	2.34%

Institutional & Insider Ownership

96.0% of Mercury Systems shares are owned by institutional investors. Comparatively, 75.9% of Kratos Defense & Security Solutions shares are owned by institutional investors. 1.4% of Mercury Systems shares are owned by company insiders. Comparatively, 2.4% of Kratos Defense & Security Solutions shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Risk and Volatility

Mercury Systems has a beta of 0.75, meaning that its stock price is 25% less volatile than the S&P 500. Comparatively, Kratos Defense & Security Solutions has a beta of 1.09, meaning that its stock price is 9% more volatile than the S&P 500.

Analyst Recommendations

This is a summary of current ratings and price targets for Mercury Systems and Kratos Defense & Security Solutions, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Mercury Systems	2	3	4	1	2.40
Kratos Defense & Security Solutions	0	6	15	1	2.77

Mercury Systems currently has a consensus price target of $86.89, indicating a potential upside of 0.26%. Kratos Defense & Security Solutions has a consensus price target of $93.83, indicating a potential downside of 3.47%. Given Mercury Systems’ higher probable upside, research analysts plainly believe Mercury Systems is more favorable than Kratos Defense & Security Solutions.

Summary

Kratos Defense & Security Solutions beats Mercury Systems on 12 of the 14 factors compared between the two stocks.

About Mercury Systems

Mercury Systems, Inc., a technology company, manufactures and sells components, products, modules, and subsystems for aerospace and defense industries in the United States, Europe, and the Asia Pacific. Its products and solutions are deployed in approximately 300 programs with 25 defense contractors and commercial aviation customers. The company offers components, including power amplifiers and limiters, switches, oscillators, filters, equalizers, digital and analog converters, chips, monolithic microwave integrated circuits, and memory and storage devices; modules and sub-assemblies, such as embedded processing boards, switched fabrics and boards, digital receivers, multi-chip modules, integrated radio frequency and microwave multi-function assemblies, tuners, and transceivers, as well as graphics and video boards; and integrated subsystems. It also designs and develops digital radio frequency memory units for various modern electronic warfare applications; radar environment simulation and test systems for defense and intelligence applications; and signals intelligence payloads and EO/IR technologies for small UAV platforms, as well as onboard UAV processor systems for real-time wide area motion imagery. The company was formerly known as Mercury Computer Systems, Inc. and changed its name to Mercury Systems, Inc. in November 2012. The company was incorporated in 1981 and is headquartered in Andover, Massachusetts.

About Kratos Defense & Security Solutions

Kratos Defense & Security Solutions, Inc. engages in the provision of mission critical products, services and solutions for United States national security priorities. It operates through the Kratos Government Solutions (KGS) and Unmanned Systems (US) segments. The KGS segment consists of an aggregation of KGS operating segments, including microwave electronic products, space, satellite and cyber, training solutions. The US segment refers to the unmanned aerial, unmanned ground, unmanned seaborne and related command, control and communications system businesses. The company was founded on December 19, 1994, and is headquartered in Round Rock, TX.