Kratos Defense & Security’s (NASDAQ: KTOS) stock price is poised for an acceleration, underpinned by its growth, profitability, and analyst sentiment. While the 2026 guidance was mixed, leading share prices to decline following the release, the takeaway was nothing but bullish.
Q1 will start off sluggishly compared to the consensus estimate, but revenue will accelerate sequentially to over 60% in Q2 and then sustain a high-double-digit pace through year’s end. The year-end result is expected to outpace the reported consensus at the midpoint of the company’s base-case scenario.
Kratos' business is underpinned by increased defense spending globally and the shift to smart and unmanned technology. What this means for Kratos is a dual tailwind, as it is a leader in next-gen, unmanned, AI-supported defense and security solutions.
Revenue growth is expected to accelerate to 25% year-over-year (YOY) at the high end of guidance, though the guidance may be cautious given market trends and the company's acquisitions.
Recent acquisitions include Nomad Global Communications Solutions and the upcoming addition of Orbit Technologies.
The two enhance the company's satellite, microwave, and command & control capability, entrenching it within the defense community.
Kratos Defense & Security Pulls Back After Robust Quarter
Kratos Defense & Security had a solid Q4 2025, with revenue growth accelerating YOY to 21.9%. The $345.1 million in revenue outpaced the consensus by more than 500 basis points, with reported growth in services and products. Services were weakest, up by 6.7%, while product was strongest. Product sales increased by 30.6%, driven by a 12.1% gain in Unmanned Systems and a 22.2% growth in Kratos Government Solutions (KGS). Within the KGS segment, defense rockets, microwave, and space were among the strongest segments, all providing above-average contributions.
Margin news was also strong. The company managed costs, improved operational quality, and leveraged revenue, driving accelerated bottom-line growth. The adjusted earnings per share (EPS) of 18 cents increased by more than 35% YOY, outpacing the consensus by more than 2000 basis points. The only bad news was that free cash flow was impaired, tied to production ramps and inventory increases to support the growing backlog. The book-to-bill ratio, a measure of income orders relative to deliveries, improved to 1.3-to-1 from 1.1-to-1, driving the backlog to approximately $1.57 billion—or more than a year’s revenue at the Q4 pace.
Analysts Respond With Caution: Reaffirm Aggressive Price Hikes
The analyst response to Kratos' guidance update was tepid, with the first revisions reaffirming or reiterating existing sentiment. However, the trends leading into the release were robust, including bullish initiations, upgrades, and price target increases.
Analysts peg this stock at a Moderate Buy with a 73% Buy-side bias and see it advancing to the high end of the target range. That puts this market in alignment with all-time highs, only needing a catalyst to push it higher.
Institutions are a risk. The group owned approximately 75% of the stock and sold on balance in Q4 2025 and Q1 2026. Running a Q1 balance of nearly $2 in sales for each $1 in purchases, the group poses a significant headwind that could keep the market from rising. The question is whether the group will maintain its bearish posture or reverse course now that prices are near long-term lows.
Valuation is another concern. The stock trades at a wicked-high 120 times its current-year outlook, pricing in strong growth. The problem is that valuations remain high in the forward comparisons, with the 2030 forecast still in the high 30X range.
With this in play, institutions may remain on the sidelines, undercutting market action, until the company can grow into its outlook and/or improve it.
Kratos Defense & Security Solutions Is At Rock Bottom
KTOS stock price action suggests it is at rock bottom. The late 2025 and early 2026 stock price correction found support above the prior, with stochastic and MACD in alignment with a strengthening market.
The likely outcome is that KTOS continues to trend higher, but there is a risk that the market consolidates at its current levels in the near term. The critical support level is near $85 and the 150-day exponential moving average. If price action falls below this level, the correction may deepen.
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The article "Kratos Defense & Security Solutions Stock Poised for Acceleration" first appeared on MarketBeat.
