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Kratos Defense (KTOS)
NASDAQ:KTOS
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Kratos Defense
(NASDAQ:KTOS)
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Rating:52Neutral
Price Target:
$87.00
▼(-4.10% Downside)
Action:ReiteratedDate:03/03/26
KTOS scores in the low-to-mid range: financial performance is held back by inconsistent profitability and choppy free cash flow (plus limited visibility from irregular 2025 statement data), and valuation is a major headwind due to an extremely high P/E. These negatives are partly offset by a constructive earnings call with strong backlog and upbeat 2026 growth guidance, while technicals remain weak in the near term.
Positive Factors
Robust backlog & large opportunity pipeline
A record consolidated backlog of $1.573B and a $13.7B opportunity pipeline provide multi-year revenue visibility and execution runway. This durable booked work supports sustained top-line growth, underpins capital planning for facilities/production, and reduces short-term demand cyclicality risks.
Hypersonics franchise ramping
Hypersonics is a structural growth engine: 120 solid rocket motors on order and management's plan to roughly double hypersonic revenue in 2026 then grow to ~$700M in 2027 create a sustained new revenue base. This product-led ramp leverages specialized IP and factory investments, raising long-term addressable market exposure.
Improving leverage and balance-sheet resilience
Measured deleveraging and rising equity through 2024 indicate stronger balance-sheet flexibility to fund program buildouts and M&A. Improved leverage supports borrowing capacity for capex and JV funding while reducing solvency risk, enabling Kratos to pursue multi-year defense contracts and facility expansions.
Negative Factors
Inconsistent profitability
Earnings have been uneven: multi-year revenue growth did not translate to consistent net profitability, reflecting thin operating margins and episodic losses. Persistent low returns raise concern about long-term ROE, limit internal funding for growth, and make earnings sensitive to cost overruns or contract mix shifts.
Volatile and frequently negative free cash flow
Cash generation has been uneven with several years of negative free cash flow, indicating weak cash conversion and high investment cadence. Recurrent FCF deficits constrain self-funded expansion, increase reliance on external capital to meet elevated capex and JV funding, and raise execution risk if funding access tightens.
Working-capital strain and margin pressure on fixed-price work
Rising receivables, inventory and DSO (121 days) materially increase working-capital needs, pressuring near-term operating cash flow. Combined with reported subcontractor/material cost pressure on fixed-price contracts, this dynamic can compress margins and require recurring financing or equity to support growth.
Kratos Defense (KTOS) vs. SPDR S&P 500 ETF (SPY)
Market Cap
$14.68B
Dividend YieldN/A
Average Volume (3M)3.75M
Price to Earnings (P/E)654.9
Beta (1Y)1.67
Revenue Growth14.00%
EPS Growth23.78%
CountryUS
Employees4,000
SectorIndustrials
Sector Strength72
IndustryAerospace & Defense
Share Statistics
EPS (TTM)0.18
Shares Outstanding170,329,160
10 Day Avg. Volume4,351,842
30 Day Avg. Volume3,751,036
Financial Highlights & Ratios
PEG Ratio33.36
Price to Book (P/B)6.68
Price to Sales (P/S)9.91
P/FCF Ratio-97.12
Enterprise Value/Market Cap1.03
Enterprise Value/Revenue11.19
Enterprise Value/Gross Profit50.52
Enterprise Value/Ebitda161.54
Forecast
1Y Price Target
$116.93Price Target Upside28.89% Upside
Rating ConsensusStrong Buy
Number of Analyst Covering16
EPS Forecast (FY)0.78
Revenue Forecast (FY)$1.66B
Kratos Defense Business Overview & Revenue Model
Company DescriptionKratos Defense & Security Solutions, Inc. operates as a government contractor of the U.S. Department of Defense. The company operates through two segments, Kratos Government Solutions and Unmanned Systems. The Kratos Government Solutions segment offers microwave electronic products, space and satellite communications, training and cybersecurity/ warfare, C5ISR/ modular systems, turbine technologies, and defense and rocket support services. The Unmanned Systems segment provides unmanned aerial systems, and unmanned ground and seaborne systems. It serves national security related agencies, the department of defense, intelligence agencies, and classified agencies, as well as international government agencies and domestic and international commercial customers. Kratos Defense & Security Solutions, Inc. was incorporated in 1994 and is headquartered in San Diego, California.
How the Company Makes MoneyKratos generates revenue through multiple streams, primarily by providing systems and services under government contracts. The company earns money from the sale of unmanned systems and drones, which are utilized for surveillance and reconnaissance missions. Additionally, Kratos offers tactical communications equipment and services, which contribute significantly to its earnings. The company also engages in research and development initiatives funded by government contracts, allowing it to create cutting-edge technologies. Strategic partnerships with defense agencies and collaborations with other defense contractors further enhance its revenue potential, as they lead to joint projects and shared resources.
Kratos Defense Key Performance Indicators (KPIs)
Any
Revenue by Segment
Breaks down sales by Kratos’ operating segments to show which products or business lines drive growth and where revenue is concentrated. Useful for spotting high-growth areas, customer or program concentration risk, and sensitivity to shifts in defense spending or contract awards.
Breaks down sales by Kratos’ operating segments to show which products or business lines drive growth and where revenue is concentrated. Useful for spotting high-growth areas, customer or program concentration risk, and sensitivity to shifts in defense spending or contract awards.
Data provided by:
The Fly
The FlyKratos Defense Earnings Call Summary
Earnings Call Date:Feb 23, 2026
(Q4-2025)
| % Change Since: |
Next Earnings Date:May 06, 2026
Earnings Call Sentiment Positive
Overall the call was constructive and optimistic: management reported a quarter that beat revenue and EBITDA expectations, delivered record backlog and pipeline metrics, and outlined several high-growth engines (hypersonics, space/satellite, engines, microwave electronics) supported by facility investments, partnerships and program wins. Near-term risks include working capital strain (DSO rise and receivables), margin pressure on certain fixed-price contracts in Unmanned Systems, elevated capex and the timing sensitivity of government funding. Management provided clear guidance and emphasized line-of-sight growth drivers with the expectation that operating cash flow and free cash flow will improve as production ramps in 2027-2028.Q4-2025 Updates
Positive Updates
Q4 Revenue Beat and Strong Organic Growth
Q4 revenue of $345.1 million vs. guidance $320M-$330M; Q4 organic revenue growth ~20% year-over-year (above prior estimates of ~14%-15%); company generated a 1.3:1 overall book-to-bill ratio in Q4.
Record Backlog and Large Opportunity Pipeline
Record consolidated backlog of $1.573 billion and a record opportunity pipeline of $13.7 billion; space & satellite backlog reached a record ~$600 million at quarter end.
Adjusted EBITDA and Guidance
Q4 adjusted EBITDA $34.1 million, slightly above prior high-end guidance ($29M-$34M); company provided FY-2026 revenue guidance of $1.595B to $1.675B (organic growth of 12.7% to 18.5%) and Q1-2026 revenue guidance of $335M-$345M with adjusted EBITDA guidance $25M-$30M.
Hypersonics Franchise Ramping Rapidly
120 Kratos Zeus and Oriole solid rocket motors on order with deliveries beginning in Q3; company expects to roughly double hypersonic revenues in 2026 to approximately $400M and then increase ~75% in 2027 to approximately $700M.
Space & Satellite Technology Wins
Successful factory acceptance test of Kratos Epic C2 with Airbus OneSat software-defined satellite; management stated selection for an initial program award of ~ $500M (recently informed); space business reported strong pipeline and a 12-month book-to-bill of 1.2:1.
Engine & Propulsion Momentum
Spartan family jet engines flying and in production; company expects low-rate initial production of small engines in H2 2026 and noted a customer rough-order-magnitude request for ~15,000 engines; new 40,000 engines-per-year capacity facility in Michigan to support scale.
Manufacturing & Facility Investments
Multiple new/expanded facilities coming online (Maryland hypersonic, Indiana hypersonic integration, Birmingham advanced manufacturing, Michigan engine capacity); Prometheus solid rocket motor JV groundbreaking completed with partner Rafael.
Strategic Awards, Partnerships and M&A
Initial MUX TACAIR award (~$230M split ~50/50 with Northrop over ~24 months); Drone Dominance Plan Phase 1 gauntlet award; Nomad Global Communications tuck-in acquisition closed (LTM revenue ~ $75M); Orbit Technologies acquisition expected to close in Q1 and will be added to forecasts post-close.
Strong Market Backdrop and Industry Tailwinds
Management emphasized improving defense funding environment (2026 NDAA and FY-26 appropriations signed, discussions of additional reconciliation funding) and highlighted positioning to address demand for affordable, fieldable military systems.
Cash Flow & CapEx Transparency
Q4 operating cash flow generated $12.1M and free cash flow used ~$0.1M after $24.2M capex (net of $12M Valkyrie sale proceeds); management provided FY-2026 capex guidance of $135M-$145M and identified expected investments (Prometheus ~$50M in 2026, facility buildouts, engine and hypersonic programs).
Negative Updates
Margin Pressure from Fixed-Price Contracts
Continued increased subcontractor and material costs on certain multiyear fixed-price contracts (notably in Unmanned Systems) are pressuring margins; those costs cannot be recovered until renewal of future production lot contracts.
Working Capital and Receivables Strain
Q4 receivables increased by approximately $29M and inventory rose ~$20M; consolidated DSO rose to 121 days from 111 days in Q3, increasing working capital needs and pressuring near-term operating cash flow.
Near-Term Cash Usage and Elevated CapEx
Free cash flow used ~$0.1M in Q4; FY-2026 gross capex guidance of $135M-$145M plus Prometheus funding estimated at ~$50M will require continued investment and consume cash in 2026 (guidance assumes continued working capital use to fund revenue growth).
Program Timing Risk from Government Funding Delays
The extended U.S. federal government shutdown materially impacted contract funding timing and receivable payments; management warned Q1 will be the weakest quarter and that appropriation timing (e.g., a late '27 appropriation) could negatively affect revenue cadence and cash timing.
Unmanned Systems Growth & Production Not Yet in Base Case
Unmanned Systems reported flat year-over-year contribution in management's forecast; Valkyrie high-rate production not included in base-case guidance until production quantities and delivery schedules are definitized (current production ~8 aircraft/year, target ~40/year by end of 2028 but timing uncertain).
Higher Bid, Proposal and Pursuit Costs
Elevated bid/proposal and pursuit-related costs to capture new opportunities partially offset margin expansion in Q4 and were identified as continuing headwinds as the company ramps pursuit activity.
Company Guidance
Kratos guided Q1 2026 revenue of $335–$345M (organic growth 7.5%–9.5% vs Q1 2025) with adjusted EBITDA of $25–$30M, and full‑year 2026 revenue of $1.595–$1.675B (organic growth 12.7%–18.5% vs 2025); management said Q1 will be the low quarter as the company ramps after the CRA and government shutdown, included the mid‑Feb Nomad acquisition in guidance (Orbit excluded), and expects continued working‑capital use (DSOs rose to 121 days) and pressure from higher material/subcontractor costs on some fixed‑price Unmanned contracts (Q4 contract mix: 70% fixed‑price / 26% cost‑type / 4% T&M). They forecast 2026 CapEx of $135–$145M (including $30–$35M shifted from 2025), Prometheus funding of ~ $50M in 2026, and noted headline metrics that underpin the guidance: Q4 revenue $345.1M and adjusted EBITDA $34.1M, record backlog $1.573B, a $13.7B opportunity pipeline, 120 SRMs on order, and hypersonic revenue expected to roughly double to ~$400M in 2026 (and reach ~ $700M in 2027).Kratos Defense Financial Statement Overview
Summary
Solid multi-year revenue growth through 2024 and improving leverage support a mid-range score, but profitability has been thin/uneven and free cash flow has been frequently negative and volatile, limiting quality. Reported 2025 statement irregularities (zeros/inconsistencies) further reduce confidence in the latest trend.Income Statement
Revenue grew steadily from 2020 to 2024 (from ~$748M to ~$1.136B), indicating solid demand and scaling. Profitability, however, remains thin and uneven: net results were negative in 2021–2023 before turning modestly positive in 2024, and operating profitability is positive but low versus revenue. The 2025 annual entry shows zero revenue and margins (with positive net income), which reads like incomplete/irregular data and reduces confidence in the most recent period’s comparability.54
Neutral
Balance Sheet
Leverage looks manageable in the available years, with debt-to-equity improving from ~0.38 (2020) to ~0.21 (2024), and equity rising materially over time—supporting balance-sheet resilience. Returns on equity are low/negative in several years, reflecting the company’s inconsistent profitability. The 2025 annual entry shows zero debt and zero equity alongside low total assets, which appears inconsistent with the historical balance sheet and suggests missing data for the latest year.62
Positive
Cash Flow
Cash generation has been volatile. Operating cash flow was positive in most years (2020, 2021, 2023, 2024) but turned sharply negative in 2022, and free cash flow frequently ran negative (2021, 2022, 2024), including a notable outflow in 2022. While 2023 showed a rebound to positive free cash flow, 2024 slipped back to negative free cash flow despite positive earnings, indicating weaker cash conversion and/or higher investment needs. The 2025 annual cash flow fields are reported as zero, limiting visibility into the latest trend.45
Neutral
| Breakdown | Dec 2025 | Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 |
|---|---|---|---|---|---|
Income Statement | |||||
| Total Revenue | 1.35B | 1.14B | 1.04B | 898.30M | 811.50M |
| Gross Profit | 298.30M | 287.20M | 268.60M | 226.00M | 225.10M |
| EBITDA | 103.80M | 93.60M | 77.50M | 26.20M | 62.80M |
| Net Income | 22.00M | 16.30M | -8.90M | -36.90M | -2.00M |
Balance Sheet | |||||
| Total Assets | 2.47B | 1.95B | 1.63B | 1.55B | 1.59B |
| Cash, Cash Equivalents and Short-Term Investments | 560.60M | 329.30M | 72.80M | 81.30M | 349.40M |
| Total Debt | 179.60M | 282.00M | 321.40M | 301.80M | 339.50M |
| Total Liabilities | 470.90M | 597.70M | 634.00M | 604.00M | 629.20M |
| Stockholders Equity | 2.00B | 1.35B | 976.00M | 936.30M | 945.10M |
Cash Flow | |||||
| Free Cash Flow | -137.40M | -8.50M | 12.80M | -71.10M | -15.70M |
| Operating Cash Flow | -42.10M | 49.70M | 65.20M | -25.70M | 30.80M |
| Investing Cash Flow | -88.30M | -69.70M | -43.80M | -177.40M | -52.10M |
| Financing Cash Flow | 360.70M | 277.60M | -30.70M | -63.30M | -9.30M |
Kratos Defense Technical Analysis
Neutral
90.72
Price Trends
96.77
Negative
89.26
Positive
73.35
Positive
Market Momentum
-2.64
Positive
46.47
Neutral
25.02
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For KTOS, the sentiment is Neutral. The current price of 90.72 is below the 20-day moving average (MA) of 92.99, below the 50-day MA of 96.77, and above the 200-day MA of 73.35, indicating a neutral trend. The MACD of -2.64 indicates Positive momentum. The RSI at 46.47 is Neutral, neither overbought nor oversold. The STOCH value of 25.02 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Neutral sentiment for KTOS.
Kratos Defense Risk Analysis
Kratos Defense disclosed 67 risk factors in its most recent earnings report. Kratos Defense reported the most risks in the "Finance & Corporate" category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks
Kratos Defense Peers Comparison
UnderperformOutperform
Sector (63)
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
73 Outperform | $12.09B | 41.94 | 10.52% | 1.04% | 12.27% | 33.16% | |
68 Neutral | $17.53B | 19.31 | 12.24% | 0.09% | 1.83% | -0.73% | |
67 Neutral | $17.81B | 28.88 | 12.42% | 1.53% | 2.60% | -18.22% | |
63 Neutral | $10.79B | 15.43 | 7.44% | 2.01% | 2.89% | -14.66% | |
52 Neutral | $14.68B | 654.86 | 1.31% | ― | 14.00% | 23.78% | |
52 Neutral | $10.40B | -166.12 | -2.64% | ― | 79.89% | -171.81% |
* Industrials Sector Average
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Kratos Defense Corporate Events
Business Operations and StrategyM&A TransactionsPrivate Placements and Financing
Kratos Defense Completes Public Equity Offering to Expand
Positive
Mar 2, 2026
On February 26, 2026, Kratos Defense & Security Solutions entered an underwriting agreement to sell 14,285,714 common shares in a firm-commitment public offering, with underwriters granted a 30-day option for an additional 2,142,857 shares. The option was exercised in full on February 27, 2026, and the offering, priced at $84.00 per share before underwriting discounts and commissions, closed on March 2, 2026, under an effective shelf registration.
Kratos plans to deploy the net proceeds to scale operations for Department of War and national security programs, invest in new systems and software development, strengthen its balance sheet ahead of anticipated contract awards, and fund the recent Nomad acquisition, the pending Orbit acquisition and select future M&A, alongside general corporate uses. The capital raise underscores the company’s drive to expand capacity, secure high-priority national security work, and consolidate its position as a key technology supplier in defense and related markets, while deepening its relationships with the underwriting banks that also provide broader financial services.
The most recent analyst rating on (KTOS) stock is a Buy with a $134.00 price target. To see the full list of analyst forecasts on Kratos Defense stock, see the KTOS Stock Forecast page.
Glossary
BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.