On Tuesday, Baird raised the price target for Kratos Defense (NASDAQ:KTOS) & Security (NASDAQ:KTOS) shares to $40.00, up from the previous $35.00, while keeping an Outperform rating on the stock. Baird's analyst highlighted Kratos as a "catalyst-rich defense technology leader" with strong positions in several high-demand areas such as Space, Hypersonics, target drones, and microwave components for missile and air defense platforms.
Kratos has been recognized for its various 'call options' including the tactical drones like the XQ-58A Valkyrie. The United States Marine Corps (USMC) is expected to increase adoption of these drones after several successful test flights conducted in 2024. The analyst pointed out that a key factor to watch is the potential bulk order of XQ-58A, which is anticipated to be influenced by Project EAGLE updates expected in the first half of 2025.
The company's recent $1.45 billion win in the hypersonic market is deemed transformational for its stock. This win is projected to contribute to an incremental top-line growth of approximately 20% for Kratos' KGS segment in 2026. InvestingPro analysis reveals the company's solid financial foundation, with a GOOD overall health score and current revenue growth of 11.3%.
For deeper insights into Kratos's financial health and growth prospects, InvestingPro offers comprehensive analysis with 16 additional ProTips and a detailed Pro Research Report. Consequently, the analyst has increased the revenue and EPS estimates for 2026, reflecting the impact of the record hypersonic award.
In valuation terms, the analyst raised the KGS segment's EV/EBITDA multiple to 28x, a 3x increase. However, the multiple for the KUS segment remains unchanged at 30x. With a current market capitalization of $4.67 billion and a P/E ratio of 299.5x, Kratos trades at premium valuations, reflecting high growth expectations. The company's overall EV/EBITDA multiple stands at 60.2x, indicating significant investor confidence in its future prospects.
This reassessment of Kratos' financial outlook and market position has led to the elevated price target, reflecting a more optimistic view of the company's future financial performance.
In other recent news, Kratos Defense & Security Solutions has been the recipient of significant analyst attention and contract awards.
B.Riley upgraded Kratos from Neutral to Buy, accompanied by a price target increase from $26 to $35, following the company's $1.45 billion contract award for the Multi-Service Advanced Capability Hypersonic Test Bed (MACH-TB) 2.0. This contract is the largest in Kratos' history and is expected to enhance hypersonic flight testing capabilities for the U.S. Department of Defense.
In addition to the B.Riley upgrade, Jefferies and Raymond (NS:RYMD) James have maintained their respective Hold and Strong Buy ratings on Kratos. This comes as the company reported robust third-quarter revenues in 2024, reaching $275.9 million, marking an 8.7% organic growth in unmanned systems and surpassing estimates. Kratos is also projecting a 10% year-over-year revenue growth for 2025.
Kratos has also secured a $6.5 million contract from the Defense Advanced Research Projects Agency (DARPA) for hypersonic flight testing. Furthermore, the company is set to develop a supersonic engine in collaboration with GE Additive and StandardAero, a development fully funded by Boom Supersonic.
In addition to these developments, Kratos was selected for a 5-year, $1 billion prime contract for the Multi-Service Advanced Capability Hypersonic Test Bed (MACH-TB), a National Security Technology Accelerator initiative contracted by the U.S. Navy. This contract aims to enhance the United States' hypersonic capabilities.
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