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On May 15, Zacks Investment Research upgraded Kratos Defense & Security Solutions Inc. (KTOS - Snapshot Report) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

Kratos Defense & Security Solutions has been witnessing rising earnings estimates, thanks to a consistently strong performance. The company registered an earnings surprise of 166.7% in the first quarter of 2013. Moreover, this national security solutions provider registered positive earnings surprises in the last five quarters with an average beat of 303.8%. The long-term expected earnings growth rate for this stock is 6.5%    

Kratos Defense & Security Solutions posted first quarter 2013 adjusted earnings of 6 cent per share, much ahead of the Zacks Consensus Estimate of a loss of 9 cents. The quarterly revenue of $253.0 million surpassed the Zacks Consensus Estimate of $237.0 million by 16%.

The positive catalysts for the stock are its diverse product portfolio and its global customer base. No single customer contract is expected to exceed 5% of the total projected revenue for 2013. This in a way puts Kratos Defense & Security Solutions in an advantageous position, reducing concentration risk.

Moreover, both core and non-core assets contributed towards the strong performance of the company. The contribution from Composite Engineering, Inc. acquired in June 2012, boosted the top line. In addition, steady research & development efforts have expanded the company’s product line-up catering to diverse customer demand and enlarging its field of operation.

The Zacks Consensus Estimate for 2013 leaped 170.6% in the last 30 days to 29 cents per share as all the estimates were revised higher over the said period. All estimates moved north for 2014 as well over the past one month, catapulting the Zacks Consensus Estimate by 833.3% to 56 cents per share, in the period.

Other Stocks to Consider

Besides Kratos Defense & Security Solutions other defense related service providers worth accumulating now are Orbital Sciences Corp. (ORB - Snapshot Report), Hexcel Corp. (HXL - Snapshot Report) and Alliant Techsystems Inc. (ATK - Analyst Report). All these companies presently carry a Zacks Rank #2 (Buy).

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