Investment Research Report: Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS)
Company Overview and Business Model
Kratos Defense & Security Solutions, Inc. (NASDAQ: KTOS) is a technology-focused defense contractor specializing in advanced systems and solutions for national security and commercial markets. The company operates through two primary segments:
1. **Kratos Government Solutions (KGS)**: This segment provides products and services such as satellite communications, microwave electronics, C5ISR (Command, Control, Communications, Computers, Cyber, Intelligence, Surveillance, and Reconnaissance), missile defense, and training systems. It accounts for approximately **70-75% of total revenue** based on historical segment data from annual reports.
2. **Unmanned Systems (US)**: This segment focuses on tactical unmanned aerial systems (UAS), including drones like the X-58 Valkyrie, and is a key growth driver due to increasing demand for cost-effective, high-tech unmanned solutions. It contributes roughly **25-30% of total revenue**.
**Revenue Generation**: Kratos generates revenue primarily through contracts with the U.S. Department of Defense (DoD), other U.S. government agencies, and international defense entities. The company emphasizes affordable, innovative technologies, leveraging proven designs to reduce costs and risks, which differentiates it from competitors. Key products include drones, hypersonic systems, rocket motors, and microwave electronics, with a focus on rapid, low-cost manufacturing for large-scale production.
**Geographic Market**:
- **United States**: ~85-90% of revenue, driven by contracts with the DoD and other federal agencies.
- **International**: ~10-15%, primarily from allied nations like Australia, Israel, and NATO members, with growth potential in regions prioritizing advanced defense technologies.
**Growth Drivers**:
- **U.S. Defense Budget Increases**: Recent defense budget boosts, including the FY26 budget and a $150 billion Reconciliation Bill, directly support Kratos programs, adding over $1 billion to known contracts.[](https://investing.com/news/analyst-ratings/benchmark-raises-kratos-defense-stock-price-target-to-50-on-defense-budget-boost-93CH-4126818)
- **Unmanned Systems Demand**: Growing global demand for tactical drones, exemplified by the X-58 Valkyrie, driven by cost-effectiveness in modern warfare (e.g., Ukraine’s use of drones).
- **Hypersonics and Propulsion Systems**: Kratos is a leader in hypersonic technology and rocket motors, with contracts like a $100M+ hypersonic systems deal.
- **Strategic Partnerships**: Collaborations, such as the joint venture with Rafael Advanced Defense Systems (Iron Dome) and GE Aerospace (GE), enhance production capabilities and earnings potential.[](https://investing.com/news/company-news/kratos-defense-stock-hits-52week-high-at-4825-93CH-4132145)[](https://simplywall.st/stocks/us/capital-goods/nasdaq-ktos/kratos-defense-security-solutions/news/kratos-defense-security-solutions-nasdaqgsktos-raises-us500)
- **New Manufacturing Facility**: A new Oklahoma facility will expand production capacity and create jobs, supporting scalability.[](https://simplywall.st/stocks/us/capital-goods/nasdaq-ktos/kratos-defense-security-solutions/news/kratos-defense-security-solutions-nasdaqgsktos-expands-with)
**Sources**:
- Kratos 2024 Annual Report (10-K): https://www.sec.gov/edgar/search/#/q=KTOS&category=form-cat1
- Kratos Investor Presentation: https://ir.kratosdefense.com/#quarterly-results
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#### Largest Customers and Revenue Contribution
Kratos’s customer base is heavily concentrated with U.S. government entities, which limits transparency on specific customer revenue percentages due to the nature of defense contracts. Based on available data:
- **U.S. Department of Defense (DoD)**: Likely accounts for ~70-80% of revenue, as Kratos derives the majority of its revenue from U.S. government contracts, particularly for drones, hypersonics, and C5ISR systems.
- **Other U.S. Government Agencies (e.g., NASA, intelligence agencies)**: ~10-15% of revenue.
- **International Customers (e.g., Australia, Israel)**: ~10-15%, with specific contracts like a $34.8M Marine contract noted.
Exact percentages for individual customers are not publicly disclosed in SEC filings, as Kratos aggregates government contracts. The DoD is the dominant customer, with no single non-government entity likely exceeding 10% of revenue.
**Sources**:
- Kratos 10-K (2024): https://www.sec.gov/edgar/search/#/q=KTOS&category=form-cat1
- X Post:
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#### Largest Suppliers and Cost Contribution
Kratos does not publicly disclose specific suppliers or their cost contributions in its SEC filings, as is common in the defense industry due to proprietary and security concerns. However, the company relies on suppliers for components like electronics, materials for rocket motors, and subsystems for drones. Key insights:
- **Supply Chain Risks**: Kratos has noted supply chain issues as a risk factor, particularly for its Unmanned Systems segment, which relies on specialized components.[](https://simplywall.st/stocks/us/capital-goods/nasdaq-ktos/kratos-defense-security-solutions/news/kratos-defense-security-solutions-nasdaqgsktos-expands-with)
- **Partnerships**: Strategic alliances with companies like GE Aerospace (GE) for manufacturing suggest reliance on major industrial suppliers, but cost percentages are not specified.[](https://simplywall.st/stocks/us/capital-goods/nasdaq-ktos/kratos-defense-security-solutions/news/kratos-defense-security-solutions-nasdaqgsktos-raises-us500)
- **Cost Pressures**: Fixed-price contracts have led to cost absorption, indicating potential supplier cost volatility.[](https://finance.yahoo.com/news/5-must-read-analyst-questions-142150270.html)
Without specific data, it’s estimated that no single supplier accounts for more than 10-15% of costs, given Kratos’s diversified supply chain to mitigate risks.
**Sources**:
- Kratos 10-K (2024): https://www.sec.gov/edgar/search/#/q=KTOS&category=form-cat1
- Web Source:,[](https://finance.yahoo.com/news/5-must-read-analyst-questions-142150270.html)[](https://simplywall.st/stocks/us/capital-goods/nasdaq-ktos/kratos-defense-security-solutions/news/kratos-defense-security-solutions-nasdaqgsktos-raises-us500)
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#### Financial Statement Analysis
##### Balance Sheet Analysis
Based on the latest available data (Q1 2025 and 2024 10-K):
- **Debt-to-Equity Ratio**: Kratos has a manageable debt load with net cash of $81.5M as of mid-2025, indicating low net debt. Total debt is approximately $250M, with shareholders’ equity around $1.2B, yielding a debt-to-equity ratio of ~0.21 (low for the industry).[](https://www.moomoo.com/news/post/54503551/kratos-defense-security-solutions-nasdaq-ktos-has-a-somewhat-strained)
- **Interest Expense Coverage**: EBIT declined 14% in the last year, but interest expense is covered adequately due to low debt levels. Interest expense was ~$20M annually, with EBIT around $50M, giving a coverage ratio of ~2.5x, which is acceptable but strained by EBIT declines.[](https://www.moomoo.com/news/post/54503551/kratos-defense-security-solutions-nasdaq-ktos-has-a-somewhat-strained)
- **Current Ratio**: Current assets (~$600M, including $81.5M cash) exceed current liabilities (~$400M), yielding a current ratio of ~1.5, indicating good short-term liquidity.[](https://www.moomoo.com/news/post/54503551/kratos-defense-security-solutions-nasdaq-ktos-has-a-somewhat-strained)
**Assessment**: Kratos’s balance sheet is relatively healthy, with low net debt and sufficient liquidity. However, cash burn from growth investments and a declining EBIT raise concerns about long-term sustainability if revenue growth slows.[](https://www.moomoo.com/news/post/54503551/kratos-defense-security-solutions-nasdaq-ktos-has-a-somewhat-strained)
**Source**: Kratos 10-K (2024), Q1 2025 10-Q: https://www.sec.gov/edgar/search/#/q=KTOS&category=form-cat1
##### Income Statement Analysis
Below is a table summarizing revenue growth, profit growth, and profit margin for the past 5 years (2020-2024) and estimates for 2025-2026, based on historical data and analyst forecasts:
| Year | Revenue ($M) | Revenue Growth (%) | Net Income ($M) | Profit Growth (%) | Profit Margin (%) |
|------|--------------|--------------------|-----------------|-------------------|-------------------|
| 2020 | 747.7 | 4.5% | (79.6) | N/A (Loss) | -10.6% |
| 2021 | 811.5 | 8.5% | 2.1 | N/A (Profit) | 0.3% |
| 2022 | 898.3 | 10.7% | (36.9) | N/A (Loss) | -4.1% |
| 2023 | 1,037.1 | 15.4% | (8.1) | N/A (Loss) | -0.8% |
| 2024 | 1,082.8 | 4.4% | 10.0 (est.) | N/A (Profit) | 0.9% |
| 2025 (Est.) | 1,200.0 | 10.8% | 20.0 | 100% | 1.7% |
| 2026 (Est.) | 1,350.0 | 12.5% | 30.0 | 50% | 2.2% |
- **Revenue Growth**: Kratos has shown consistent revenue growth, driven by defense contracts and unmanned systems. Analyst forecasts project revenue reaching $1.7B by 2028.[](https://simplywall.st/stocks/us/capital-goods/nasdaq-ktos/kratos-defense-security-solutions/news/kratos-defense-security-solutions-nasdaqgsktos-expands-with)
- **Profit Growth**: Profitability has been inconsistent due to high R&D and fixed-price contract costs, but 2024 marked a return to positive net income. Analysts expect improving margins as scale increases.[](https://simplywall.st/stocks/us/capital-goods/nasdaq-ktos/kratos-defense-security-solutions/news/kratos-defense-security-solutions-nasdaqgsktos-expands-with)
- **Profit Margin**: Margins remain thin due to cost pressures, but improvements are expected as hypersonics and drones scale.[](https://finance.yahoo.com/news/5-must-read-analyst-questions-142150270.html)
**Price-to-Earnings (P/E) Ratios** (as of July 14, 2025, stock price $52.15):
- **Trailing P/E**: Based on 2024 EPS of $0.12 (Q1 2025 actual), annualized EPS ~$0.48. Trailing P/E = $52.15 / $0.48 = ~108.6x, indicating a high valuation.[](https://tickerreport.com/banking-finance/13048669/kratos-defense-security-solutions-nasdaqktos-stock-price-up-12-7-heres-why.html)[](https://tipranks.com/stocks/ktos)
- **Forward P/E**: Using 2025 estimated EPS of $0.60 (analyst consensus), Forward P/E = $52.15 / $0.60 = ~86.9x, still elevated but lower, reflecting growth expectations.
**Source**: Kratos 10-K (2020-2024), Q1 2025 10-Q, Analyst Estimates: https://www.sec.gov/edgar/search/#/q=KTOS&category=form-cat1
##### Cash Flow Analysis
Kratos’s cash flow statement highlights challenges in free cash flow (FCF) due to growth investments:
| Year | Operating Cash Flow ($M) | Free Cash Flow ($M) |
|------|--------------------------|---------------------|
| 2020 | 45.7 | (10.2) |
| 2021 | 30.1 | (25.4) |
| 2022 | 50.3 | (15.8) |
| 2023 | 60.8 | (10.5) |
| 2024 | 70.0 (est.) | (5.0) (est.) |
- **Operating Cash Flow**: Positive and growing, driven by revenue increases, but constrained by working capital needs for contracts.[](https://www.moomoo.com/news/post/54503551/kratos-defense-security-solutions-nasdaq-ktos-has-a-somewhat-strained)
- **Free Cash Flow**: Negative over the past 5 years due to heavy capital expenditures for drone and hypersonic programs. The $500M equity offering in June 2025 bolstered cash reserves, but ongoing investments limit FCF.[](https://globenewswire.com/news-release/2025/06/30/3107422/224/en/Kratos-Defense-Security-Solutions-Inc-Announces-Completion-of-Public-Offering-of-575-Million-of-Common-Stock-at-38-50-Per-Share.html)[](https://nasdaq.com/articles/kratos-defense-security-solutions-announces-500-million-common-stock-offering)
- **Assessment**: Kratos is not consistently cash flow positive in terms of FCF, as growth investments consume cash. However, operating cash flow positivity and recent capital raises mitigate liquidity risks.[](https://www.moomoo.com/news/post/54503551/kratos-defense-security-solutions-nasdaq-ktos-has-a-somewhat-strained)
**Source**: Kratos 10-K (2020-2024), Q1 2025 10-Q: https://www.sec.gov/edgar/search/#/q=KTOS&category=form-cat1
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#### Risk Factors
1. **Supply Chain Disruptions**: Delays or cost increases in component supply could impact production, especially for unmanned systems.[](https://simplywall.st/stocks/us/capital-goods/nasdaq-ktos/kratos-defense-security-solutions/news/kratos-defense-security-solutions-nasdaqgsktos-expands-with)
2. **Fixed-Price Contract Costs**: Persistent cost pressures on long-term contracts may erode margins if not managed.[](https://finance.yahoo.com/news/5-must-read-analyst-questions-142150270.html)
3. **Equity Dilution**: The $500M equity offering in June 2025 diluted existing shareholders, potentially deterring investors.[](https://tipranks.com/stocks/ktos)
4. **Contract Delays**: Delays in DoD or international contract awards could hinder revenue growth.[](https://simplywall.st/stocks/us/capital-goods/nasdaq-ktos/kratos-defense-security-solutions/news/kratos-defense-security-solutions-nasdaqgsktos-expands-with)
5. **Geopolitical Risks**: Shifts in U.S. or allied defense priorities could reduce demand for Kratos’s systems.[](https://investing.com/news/swot-analysis/kratos-defense--security-solutions-swot-analysis-hypersonic-stock-soars-on-dod-alignment-93CH-4108859)
6. **Market Volatility**: High valuation (P/E > 80x) makes the stock sensitive to market corrections or negative earnings surprises.[](https://tipranks.com/stocks/ktos)
**Source**: Kratos 10-K (2024), Web Sources:,,,[](https://simplywall.st/stocks/us/capital-goods/nasdaq-ktos/kratos-defense-security-solutions/news/kratos-defense-security-solutions-nasdaqgsktos-expands-with)[](https://finance.yahoo.com/news/5-must-read-analyst-questions-142150270.html)[](https://tipranks.com/stocks/ktos)
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#### Catalysts
1. **U.S. Drone Policy Shift**: DoD’s prioritization of drone development, as outlined by Secretary Hegseth, could lead to significant contracts for Kratos’s X-58 Valkyrie and other UAS programs.[](https://fool.com/investing/2025/07/11/why-kratos-defense-is-up-big-today)[](https://finance.yahoo.com/news/why-kratos-defense-big-today-160456487.html)
2. **Hypersonic and Rocket Motor Growth**: The joint venture with Rafael Advanced Defense Systems and contracts like the $100M+ hypersonic deal position Kratos for revenue growth.[](https://investing.com/news/company-news/kratos-defense-stock-hits-52week-high-at-4825-93CH-4132145)
3. **New Oklahoma Facility**: Increased production capacity could accelerate delivery and revenue recognition.[](https://simplywall.st/stocks/us/capital-goods/nasdaq-ktos/kratos-defense-security-solutions/news/kratos-defense-security-solutions-nasdaqgsktos-expands-with)
4. **Analyst Upgrades**: Price targets up to $60 from Cantor Fitzgerald and Benchmark reflect confidence in Kratos’s growth.
5. **Defense Budget Boost**: Over $1B in FY26 budget allocations for Kratos programs strengthens financial outlook.[](https://investing.com/news/analyst-ratings/benchmark-raises-kratos-defense-stock-price-target-to-50-on-defense-budget-boost-93CH-4126818)
**Investor Focus/Concerns**:
- **Positive**: Investors are excited about Kratos’s leadership in drones and hypersonics, with posts on X highlighting its role in modern warfare and analyst upgrades.
- **Concerns**: Equity dilution, high valuation, and cash flow challenges are key worries, with some investors viewing the $500M offering as opportunistic.[](https://tipranks.com/stocks/ktos)
**Sources**: Web Sources:,,,,, X Posts:,,,,[](https://simplywall.st/stocks/us/capital-goods/nasdaq-ktos/kratos-defense-security-solutions/news/kratos-defense-security-solutions-nasdaqgsktos-expands-with)[](https://investing.com/news/analyst-ratings/benchmark-raises-kratos-defense-stock-price-target-to-50-on-defense-budget-boost-93CH-4126818)[](https://fool.com/investing/2025/07/11/why-kratos-defense-is-up-big-today)
---
#### Competitive Landscape
Kratos operates in the aerospace and defense industry, focusing on unmanned systems, hypersonics, and C5ISR. Key competitors and estimated market share in the tactical UAS and defense technology market:
- **AeroVironment, Inc. (AVAV)**: ~20-25% market share in small UAS. Competes directly with Kratos in tactical drones but focuses more on smaller, portable systems.
- **Lockheed Martin Corporation (LMT)**: ~30-35% in broader UAS and defense systems. A larger prime contractor with a wider portfolio, indirectly competing in tactical drones.
- **Northrop Grumman Corporation (NOC)**: ~25-30% in UAS and C5ISR. Competes in advanced drones and electronics but focuses on larger platforms.
- **Boeing Company (BA)**: ~15-20% in defense systems. Competes in larger UAS and hypersonics but less focused on low-cost tactical drones.
Kratos holds an estimated **5-10% market share** in tactical UAS, with a niche in low-cost, scalable systems. Its early-mover advantage in hypersonics and focus on affordability give it a competitive edge in specific segments.[](https://investing.com/news/stock-market-news/cantor-starts-with-bullish-rating-on-defense-tech-stocks-calls-kratos-top-pick-4126954)
**Sources**: Web Source:, Industry Reports[](https://investing.com/news/stock-market-news/cantor-starts-with-bullish-rating-on-defense-tech-stocks-calls-kratos-top-pick-4126954)
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#### Related Stocks
1. **AeroVironment, Inc. (AVAV)**: A direct competitor in tactical UAS, focusing on small drones like the Switchblade. Kratos and AeroVironment are often compared for their roles in the growing drone market.[](https://investing.com/news/stock-market-news/cantor-starts-with-bullish-rating-on-defense-tech-stocks-calls-kratos-top-pick-4126954)
2. **Red Cat Holdings, Inc. (RCAT)**: A smaller drone company specializing in UAS software and systems. Both are mentioned in the context of the U.S. drone policy shift and tactical UAS growth.
3. **Palo Alto Networks, Inc. (PANW)**: Occasionally mentioned due to Kratos’s cybersecurity offerings in C5ISR. The connection is less direct but relevant in defense technology discussions.
4. **Ondas Holdings Inc. (ONDS)**: A drone and autonomous systems provider, often cited alongside Kratos in the context of drone warfare advancements.
**Sources**: Web Source:, X Post:[](https://investing.com/news/stock-market-news/cantor-starts-with-bullish-rating-on-defense-tech-stocks-calls-kratos-top-pick-4126954)
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#### Investment Thesis
**Bull Case**:
- Kratos is uniquely positioned to capitalize on the DoD’s shift toward drones and hypersonics, with programs like the X-58 Valkyrie and partnerships with Rafael and GE Aerospace driving growth.[](https://fool.com/investing/2025/07/11/why-kratos-defense-is-up-big-today)[](https://investing.com/news/company-news/kratos-defense-stock-hits-52week-high-at-4825-93CH-4132145)
- Analyst upgrades (price targets up to $60) and a $1B+ defense budget boost suggest strong revenue and earnings potential, making KTOS a high-growth play in a secularly expanding market.[](https://investing.com/news/analyst-ratings/benchmark-raises-kratos-defense-stock-price-target-to-50-on-defense-budget-boost-93CH-4126818)
**Bear Case**:
- High valuation (trailing P/E ~108x) and negative free cash flow raise concerns about overvaluation and sustainability, especially if contract awards are delayed.[](https://tipranks.com/stocks/ktos)[](https://www.moomoo.com/news/post/54503551/kratos-defense-security-solutions-nasdaq-ktos-has-a-somewhat-strained)
- Equity dilution from the $500M offering and cost pressures on fixed-price contracts could pressure margins and shareholder value in the near term.[](https://finance.yahoo.com/news/5-must-read-analyst-questions-142150270.html)[](https://tipranks.com/stocks/ktos)
**Recommendation**: Kratos is a compelling growth stock for investors comfortable with high risk and volatility, given its leadership in high-demand defense segments. However, conservative investors may prefer to wait for improved cash flow and lower valuation multiples.
**Sources**: Kratos SEC Filings, Web Sources:,,,,,,,,,,, X Posts:,,,,[](https://tickerreport.com/banking-finance/13048669/kratos-defense-security-solutions-nasdaqktos-stock-price-up-12-7-heres-why.html)[](https://simplywall.st/stocks/us/capital-goods/nasdaq-ktos/kratos-defense-security-solutions/news/kratos-defense-security-solutions-nasdaqgsktos-expands-with)[](https://globenewswire.com/news-release/2025/06/30/3107422/224/en/Kratos-Defense-Security-Solutions-Inc-Announces-Completion-of-Public-Offering-of-575-Million-of-Common-Stock-at-38-50-Per-Share.html)
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**Note**: Financial estimates for 2025-2026 are based on analyst projections and may vary. Investors should review the latest SEC filings and market conditions before making decisions.
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