Kratos Defense & Security Solutions (NASDAQ:KTOS) versus Mercury Systems (NASDAQ:MRCY) Critical Survey

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

Volatility and Risk

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

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%

Valuation and Earnings

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

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Mercury Systems	$912.02 million	5.42	-$37.90 million	($0.53)	-155.40
Kratos Defense & Security Solutions	$1.14 billion	13.35	$16.30 million	$0.13	685.08

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.

Analyst Recommendations

This is a summary of current ratings and target prices 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	5	16	1	2.82

Mercury Systems presently has a consensus target price of $86.89, indicating a potential upside of 5.50%. Kratos Defense & Security Solutions has a consensus target price of $95.28, indicating a potential upside of 6.98%. Given Kratos Defense & Security Solutions’ stronger consensus rating and higher probable upside, analysts clearly believe Kratos Defense & Security Solutions is more favorable than Mercury Systems.

Insider and Institutional Ownership

96.0% of Mercury Systems shares are held by institutional investors. Comparatively, 75.9% of Kratos Defense & Security Solutions shares are held by institutional investors. 1.4% of Mercury Systems shares are held by company insiders. Comparatively, 2.4% of Kratos Defense & Security Solutions shares are held by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a stock is poised for long-term growth.

Summary

Kratos Defense & Security Solutions beats Mercury Systems on 13 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.