Defense drone maker Kratos falls after it unveils plans to sell stock
The company is taking advantage of a surge in its stock price to raise some corporate cash.
Drone weaponry maker Kratos Defense is down after it announced the sale of roughly 13 million new shares at $38.50 apiece in an underwritten offering that will raise just over $480 million.
The company could also sell another 2 million shares over the next month or so as part of the deal.
The knee-jerk sell-off is understandable and to a certain extent, mechanical, as the deal will dilute existing shareholders and the offering price is well below where the shares closed on Wednesday. (Selling new stock means each existing shareholder will own a slightly smaller share of the company after the deal closes on June 27.)
But Kratos’ share price has roughly doubled over the last year, trouncing the nearly 30% gain in the small-cap S&P 600 aerospace and defense index. The grinding war in Ukraine has shown how deadly and central drones will likely be in coming conflicts, generating a pop in drone-related companies.
It’s entirely reasonable for companies like Kratos to essentially transform some of that equity value into cash the company can use to build the business.
To that end, management said one of the uses of these proceeds will be to “fund investments and capital expenditures to scale and successfully execute on large, mission critical National Security priorities related to existing programs, recent program awards, and significant high-probability pipeline opportunities.”
And it seems that the market is coming around to that conclusion, as premarket losses of roughly 7% have been cut considerably in early trading.
