KTOS Stock Rises 14.4% in 3 Months: What's the Next Best Move?

Kratos Defense & Security Solutions, Inc. KTOS shares have rallied 14.4% in the past three months compared with the Zacks Aerospace-Defense Equipment industry’s growth of 0.5%. Rising defense budgets and growing demand for unmanned, autonomous tactical systems are driving strong interest in Kratos Defense’s drone and defense technologies.
 

Other defense equipment stocks, such as CurtissWright CW and AeroVironment AVAV, have also outperformed the industry in the last three months. Shares of CurtissWright and AeroVironment have gained 11.4% and 20.4%, respectively, during the same timeframe.

Considering Kratos Defense’s outperformance compared with its industry, 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.

Advantageous Factors for KTOS Stock

Kratos Defense is recognized as one of the top providers of unmanned aerial target drone systems for major U.S. military branches and international allies. These drones are essential for training and weapons testing, making Kratos Defense a trusted partner in mission-critical defense operations. Because of its strong reputation, advanced technology and proven performance, the company consistently secures new contracts and forges strategic alliances. This not only expands its global footprint in the unmanned aerial systems market but also enhances its technological leadership and long-term competitiveness.

In November 2025, Kratos Defense announced the opening of a new Propulsion Manufacturing Facility in Auburn Hills, MI. It signifies a change in the company’s manufacturing process from small-scale, limited-run production to large-scale, industrial engine manufacturing. As a result, Kratos Defense is better equipped to handle the increasing demand for drones, missiles, UAVs and other defense systems around the world while maintaining competitive pricing and reliability dependability.

During the same month, Kratos Defense opened a new 60,000 Sq Ft Jerusalem facility for the microwave electronics division. The new facility marks a major increase in KTOS’ manufacturing and R&D infrastructure for microwave and RF electronics. It increases the company’s ability to design, produce and deliver crucial components for missiles, radars, satellites, electronic-warfare, communications and space systems.

Kratos Defense formed a strategic partnership with Korea Aerospace Industries in October 2025 to advance manned-unmanned teaming technologies, leveraging its strength in affordable, high-performance unmanned systems to improve coordinated operations between crewed and uncrewed aircraft.

For defense stocks like KTOS, a solid backlog also reflects strong growth prospects. By the end of the third quarter of 2025, KTOS had a solid backlog of $1.48 billion. This implies solid revenue generation prospects for the company.

Challenges Faced by KTOS

Although Kratos Defense shows notable growth prospects, it continues to face certain obstacles. One such obstacle is disruptions to the supply chain, arising from raw material shortages, which continue to impact the defense sector as a whole and might affect the company's operations. 

Kratos Defense's programs may see their funding cut, postponed or eliminated due to current federal budget pressures.

Estimates for KTOS Stock

The Zacks Consensus Estimate for 2025 and 2026 earnings per share (EPS) indicates an increase of 4.08% and 38.95%, respectively, year over year. 
 

The Zacks Consensus Estimate for CurtissWright’s 2025 and 2026 EPS indicates an increase of 20.1% and 3.21%, respectively, year over year. The consensus estimate for AeroVironment 2025 and 2026 EPS indicates an increase of 10.4% and 30.2%, respectively, year over year.

KTOS’ Earnings Surprise History

The company beat on earnings in each of the trailing four quarters, delivering an average surprise of 29.17%.

KTOS Stock’s ROIC

The image below shows that KTOS stock’s trailing 12-month return on invested capital (ROIC) beats the peer group’s average. This suggests that the company's investments are yielding sufficient returns to cover its expenses.

KTOS Stock Trades at a Discount

In terms of valuation, KTOS’ forward 12-month price-to-sales (P/S) is 7.8X, a discount to the industry’s average of 9.42X.

What Should an Investor Do?

Kratos Defense continues to strengthen its position in the global defense market through its leadership in unmanned aerial target drones, which support critical training and weapons testing for U.S. and allied militaries. In late 2025, the company significantly expanded its manufacturing capabilities by opening a large-scale propulsion facility in Michigan and a 60,000-sq-ft microwave electronics facility in Jerusalem. 

However, those who already have this Zacks Rank #3 (Hold) stock in their portfolio may continue to retain it, considering the company’s impressive earnings growth projection and better ROIC. 

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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