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Kratos Defense (KTOS)
NASDAQ:KTOS

Kratos Defense (KTOS) AI Stock Analysis

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Kratos Defense

(NASDAQ:KTOS)

Rating:73Outperform
Price Target:
$48.00
▲(7.48%Upside)
Kratos Defense's overall stock score reflects robust technical momentum and strategic growth potential in hypersonics and drones, offset by high valuation concerns and challenges in cash flow management. The recent public offering supports its strategic initiatives, but market valuation remains a significant risk.
Positive Factors
Contracts and Partnerships
KTOS has been awarded a five-year contract for the Multi-Service Advanced Capability Hypersonic Test Bed valued at $1.45B, with an additional $400M expansion.
Equity Offering and Investments
KTOS announced a $500m primary equity share offering, indicating a willingness to invest in the New Defense Industry.
Government Support and Funding
The Defense Budget Reconciliation Bill details point to KTOS programs receiving $600M of incremental funding, showcasing increased government support.
Negative Factors
Equity Offering Concerns
Some investors view the equity offering as a concerning sign, seeing it as opportunistic selling.
Uncertainty and Space Business
Uncertainty remains around the space business and pace of awards at Kratos Unmanned Systems, impacting the overall outlook.
Valuation Challenges
The valuation of Kratos Unmanned Systems is challenging to justify due to the lack of a significant program of record.

Kratos Defense (KTOS) vs. SPDR S&P 500 ETF (SPY)

Kratos Defense Business Overview & Revenue Model

Company DescriptionKratos Defense & Security Solutions, Inc. (KTOS) is a mid-tier defense contractor that specializes in providing technology-driven solutions for national security, defense, and related commercial applications. The company operates primarily through two segments: Kratos Government Solutions (KGS) and Unmanned Systems (US). KGS focuses on offering services and solutions in areas such as satellite communications, cyber security, microwave electronics, missile defense, and combat systems. The US segment is dedicated to developing and producing unmanned aerial drone systems and related technologies, serving both military and civilian markets.
How the Company Makes MoneyKratos Defense makes money through a diversified revenue model centered on government contracts, product sales, and service offerings. The company earns a substantial portion of its revenue from contracts with the U.S. Department of Defense and other government agencies, providing them with advanced technology solutions and services. The KGS segment generates income through selling communication systems, electronic products, and cybersecurity solutions. Meanwhile, the Unmanned Systems segment contributes to revenue by designing, manufacturing, and selling unmanned aerial systems (UAS) and related technologies. Additionally, Kratos leverages strategic partnerships and collaborations with other defense contractors and technology firms to enhance its product offerings and expand its market reach, further driving its revenue growth.

Kratos Defense Earnings Call Summary

Earnings Call Date:May 07, 2025
(Q1-2025)
|
% Change Since: 23.85%|
Next Earnings Date:Jul 31, 2025
Earnings Call Sentiment Neutral
The earnings call presented a mix of positive developments and challenges. Kratos reported strong revenue growth and a record opportunity pipeline, driven by its hypersonic and drone segments. However, increased costs on fixed price contracts and cash flow challenges were noted, along with potential disruptions due to facility moves.
Q1-2025 Updates
Positive Updates
Record Opportunity Pipeline
Kratos' opportunity pipeline stands at approximately $12.6 billion, an all-time high for the company, indicating a large and increasing number of opportunities.
Significant Organic Revenue Growth
Kratos reported approximately 10% 2025 and 13% to 15% 2026 year-over-year organic revenue growth, supported by a Q1 book-to-bill ratio of 1.2:1.
Strong Hypersonic Franchise Performance
Kratos' Dark Fury hypersonic vehicle has successfully flown its initial mission at hypersonic speed, achieving all expectations under a customer-funded contract.
Expansion in Drone and Tactical Systems
Kratos is currently bidding on numerous large multi-hundred million dollar single award opportunities in the drone area, including international contracts.
Financial Performance Exceeds Estimates
Revenues for the first quarter were $302.6 million, above the estimated range of $285 million to $295 million, with adjusted EBITDA at $26.7 million, above the estimated range of $20 million to $24 million.
Negative Updates
Increased Subcontractor and Material Costs
Continued increased subcontractor and material costs on certain multiyear fixed price contracts in the Unmanned Systems business impacted margins.
Cash Flow Used in Operations
First quarter '25 cash flow used in operations was $29.2 million, with free cash flow used in operations at $51.8 million after $22.6 million of capital expenditures.
Challenges with Fixed Price Contracts
Kratos is facing challenges with certain 5-year fixed price contracts due to inflation and labor cost increases, particularly impacting the target drone business.
Facility Move in Israel
The expected downtime due to the Microwave Products facility move in Israel is impacting estimated Q2 shipments and margins.
Company Guidance
During the Kratos Defense & Security Solutions' First Quarter 2025 Conference Call, the company provided several key metrics and guidance regarding its financial and operational outlook. Kratos anticipates approximately 10% organic revenue growth for 2025 and 13% to 15% for 2026, driven by a robust opportunity pipeline valued at approximately $12.6 billion, marking an all-time high for the company. The Q1 book-to-bill ratio was 1.2:1, consistent with the last twelve months. Kratos' first-quarter revenue was $302.6 million, exceeding the estimated range, and adjusted EBITDA was $26.7 million, also surpassing expectations. The conference call emphasized the potential for significant contributions from the company's hypersonic franchise, jet engines, and propulsion systems, along with notable opportunities in integrated air and missile defense. The fiscal 2025 CRA, which allows for reprogramming of funds, has brought clarity and increased confidence in Kratos' future growth trajectory. Additionally, Kratos' investment in manufacturing and production capabilities is expected to support anticipated customer orders and requirements.

Kratos Defense Financial Statement Overview

Summary
Kratos Defense shows positive revenue growth and improving profitability, with a strong balance sheet characterized by low leverage and high equity. However, cash flow management remains a concern due to negative free cash flow.
Income Statement
78
Positive
Kratos Defense demonstrates a positive revenue growth trajectory, with TTM (Trailing-Twelve-Months) revenue increasing by 2.2% compared to the previous year. Gross profit margin remains steady at approximately 24.8%, indicating effective cost management. The net profit margin improved from 1.4% to 1.7% TTM, reflecting enhanced profitability. However, the company exhibits relatively low EBIT and EBITDA margins of 2.5% and 4.8%, respectively, suggesting room for operational efficiency improvements.
Balance Sheet
80
Positive
The balance sheet of Kratos Defense shows strong financial stability with a solid equity position, as indicated by an equity ratio of 69.2%. The debt-to-equity ratio stands at a low 0.08, indicating conservative leverage. Return on equity improved to 1.4% TTM, highlighting increased shareholder value. The company's robust cash and cash equivalents position further strengthens its financial resilience.
Cash Flow
68
Positive
Kratos Defense faces challenges in cash flow management, with free cash flow remaining negative at TTM. The operating cash flow to net income ratio is 1.02, reflecting adequate cash generation relative to reported earnings. However, free cash flow to net income is negative, indicating pressure on liquidity. The focus should be on converting earnings to positive free cash flow.
BreakdownTTMDec 2024Dec 2023Dec 2022Dec 2021Dec 2020
Income Statement
Total Revenue1.16B1.14B1.04B898.30M811.50M747.70M
Gross Profit287.60M287.20M268.60M226.00M225.10M203.20M
EBITDA55.20M96.40M79.50M26.50M62.80M64.40M
Net Income19.50M16.30M-8.90M-34.10M500.00K79.60M
Balance Sheet
Total Assets2.00B1.95B1.63B1.55B1.59B1.56B
Cash, Cash Equivalents and Short-Term Investments263.70M329.30M72.80M81.30M349.40M380.80M
Total Debt111.00M282.00M321.40M301.80M339.50M348.50M
Total Liabilities617.30M597.70M634.00M604.00M629.20M622.70M
Stockholders Equity1.39B1.35B976.00M936.30M945.10M925.30M
Cash Flow
Free Cash Flow-44.40M-8.50M12.80M-71.10M-15.70M10.70M
Operating Cash Flow19.80M49.70M65.20M-25.70M30.80M46.60M
Investing Cash Flow-75.70M-69.70M-43.80M-177.40M-52.10M-87.30M
Financing Cash Flow-19.50M277.60M-30.70M-63.30M-9.30M247.70M

Kratos Defense Technical Analysis

Technical Analysis Sentiment
Positive
Last Price44.66
Price Trends
50DMA
38.14
Positive
100DMA
33.89
Positive
200DMA
30.45
Positive
Market Momentum
MACD
1.83
Positive
RSI
60.16
Neutral
STOCH
57.73
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For KTOS, the sentiment is Positive. The current price of 44.66 is above the 20-day moving average (MA) of 42.26, above the 50-day MA of 38.14, and above the 200-day MA of 30.45, indicating a bullish trend. The MACD of 1.83 indicates Positive momentum. The RSI at 60.16 is Neutral, neither overbought nor oversold. The STOCH value of 57.73 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive 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

Overall Rating
UnderperformOutperform
Sector (71)
Financial Indicators
Name
Overall Rating
Market Cap
P/E Ratio
ROE
Dividend Yield
Revenue Growth
EPS Growth
76
Outperform
$11.25B159.545.10%14.50%-29.76%
73
Outperform
$7.43B353.601.45%7.32%
73
Outperform
$5.84B28.7111.61%0.63%4.50%9.90%
71
Outperform
¥254.55B13.008.49%3.09%6.31%12.77%
HXHXL
68
Neutral
$4.61B37.817.87%1.18%5.37%29.15%
58
Neutral
$3.07B-4.45%5.66%52.71%
SPSPR
37
Underperform
$4.54B81.63%-2.91%-109.95%
* Industrials Sector Average
Performance Comparison
Ticker
Company Name
Price
Change
% Change
KTOS
Kratos Defense
44.66
23.88
114.92%
AVAV
AeroVironment
246.23
76.10
44.73%
HXL
Hexcel
57.30
-6.97
-10.84%
MRCY
Mercury Systems
51.43
21.33
70.86%
MOG.A
Moog
185.16
15.72
9.28%
SPR
Spirit AeroSystems
38.73
4.36
12.69%

Kratos Defense Corporate Events

Private Placements and FinancingBusiness Operations and Strategy
Kratos Defense Completes Public Offering of Shares
Positive
Jun 27, 2025

On June 25, 2025, Kratos Defense & Security Solutions announced an underwritten public offering of 12,987,013 shares of its common stock, with an option for underwriters to purchase an additional 1,948,052 shares, which was fully exercised. The offering, completed on June 27, 2025, was priced at $38.50 per share, and Kratos plans to use the proceeds for investments in national security priorities, acquisitions, and general corporate purposes. This move is expected to enhance Kratos’ ability to execute on large-scale national security programs and strengthen its market position.

The most recent analyst rating on (KTOS) stock is a Buy with a $30.00 price target. To see the full list of analyst forecasts on Kratos Defense stock, see the KTOS Stock Forecast page.

Executive/Board ChangesShareholder Meetings
Kratos Defense Holds Annual Shareholder Meeting
Neutral
May 19, 2025

On May 14, 2025, Kratos Defense held its Annual Meeting with shareholders representing 133,981,220 shares. During the meeting, stockholders elected directors to serve until the next annual meeting, ratified Deloitte & Touche LLP as the independent registered public accounting firm for the fiscal year ending December 28, 2025, and approved the compensation of the company’s named executive officers.

The most recent analyst rating on (KTOS) stock is a Buy with a $30.00 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.Date of analysis: Jul 02, 2025