Kratos Defense Stock Gains 21.4% in 3 Months: Should Investors Buy Now?

Kratos Defense & Security Solutions, Inc.’s KTOS shares have risen 21.4% over the past three months compared with the Zacks Aerospace-Defense Equipment industry’s growth of 0.6%. The company maintains a leading position as the U.S. Army’s primary supplier of unmanned target drones, with sustained demand supported by ongoing U.S. defense spending.
 

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Other defense equipment stocks like Teledyne Technologies TDY and AeroVironment AVAV have also outperformed the industry in the said time frame. Teledyne Technologies and AeroVironment stocks have gained 7.2% and 21.8%, respectively. TDY’s long-term growth prospects remain bright on the back of rising global defense spending, increasing demand for advanced sensing and imaging technologies and healthy demand across marine, space and commercial aerospace end markets. AVAV is benefiting from military modernization and a pivot toward autonomous unmanned systems and counter-drone technology.

Considering Kratos Defense’s outperformance, investors might be left wondering if this is a good time to add KTOS stock to their portfolio. Let's examine the factors that contributed to the share price gain and assess the stock's investment prospects to make an informed decision.

Tailwinds for KTOS Stock

Kratos Defense serves the defense industry with products spanning target drones, rocket systems and SRMs, hypersonic vehicles, jet engines for drones and missiles, and virtualized ground systems for satellites. In second-quarter 2026, consolidated bookings were $492.2 million, implying a 1.1 book-to-bill, while the last 12-month book-to-bill was 1.3. The bid and proposal pipeline rose to $15.0 billion as of June 28, 2026.

KTOS is the primary unmanned aerial target drone system provider for the U.S. Air Force, Navy, Army and several allied defense agencies. This position has led to multiple recent contracts and partnerships that are expanding its presence in the global UAS market, including activity tied to the XQ-58A Valkyrie. In second-quarter 2026, Unmanned Systems revenues increased to $79.1 million from $73.2 million a year earlier, driven primarily by Valkyrie-related activity. Bookings in the segment totaled $78.4 million in the quarter, implying a 1.0 book-to-bill, and backlog was $374.6 million as of June 28, 2026. 

The company is also investing in facilities and programs intended to support future production and test needs, including its operational hypersonic payload integration facility in Indiana and additional engine, radar and missile initiatives. Management expects hypersonic revenues to increase from approximately $200 million in 2025 to approximately $400 million in 2026 and at least $700 million in 2027. The company is also procuring components for 3,000 Spartan turbojet engines expected to be produced for customers in 2027. The company plans to order components for an additional 5,000 engines scheduled for 2028.

Headwinds for KTOS

Kratos Defense continues to cite supply-chain disruptions and parts availability as industry issues that can delay material receipts and deliveries. Management’s 2026 outlook explicitly assumes potential manufacturing and supply-chain disruptions, parts shortages and continued cost increases. Inventoried costs increased to $235.9 million as of June 28, 2026, from $188.2 million as of 2025-end, consistent with larger lot purchases and long-lead items. Persistently higher input costs or further supply friction could pressure margins and keep cash conversion below investor expectations.

Estimates for KTOS Stock

The Zacks Consensus Estimate for 2026 and 2027 earnings per share (EPS) indicates an increase of 49.09% and 36.59%, respectively, year over year. 
 

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The Zacks Consensus Estimate for Teledyne Technologies’ 2026 and 2027 EPS implies an increase of 11.7% and 8.9%, respectively, year over year. The consensus estimate for AeroVironment’s fiscal 2027 EPS indicates a decrease of 1.5% year over year.  

KTOS’ Earnings Surprise History

The company beat on earnings in each of the trailing four quarters, delivering an average surprise of 32.47%.

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KTOS’ Return on Equity Lower Than Industry

The company’s trailing 12-month return on equity of 4.54% is lower than the industry average of 12.47%. Return on equity, a profitability measure, reflects how effectively a company utilizes its shareholders’ funds to generate income.

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KTOS Stock Trades at a Discount

In terms of valuation, KTOS’ forward 12-month price/sales (P/S) is 5.87X, a discount to the industry’s average of 8.6X.

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What Should an Investor Do Now?

Kratos Defense is strengthening its position in unmanned systems, hypersonics and propulsion, supported by rising defense demand and a strong pipeline of future opportunities. Growth in Valkyrie-related programs, hypersonic systems and engine production is expanding its addressable market and providing visibility for continued revenue growth.

Given its price performance, strong earnings growth and discounted valuation, one should consider including KTOS stock in their portfolios right now. KTOS has a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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