Is Kratos Defense Poised to Gain From a Higher US Defense Budget?

Kratos Defense & Security Solutions, Inc. KTOS stands to benefit from a rise in defense spending. Recently, U.S. President Donald Trump proposed increasing military spending to $1.5 trillion in 2027, from the previous $901 billion approved for 2026. 

The Pentagon and other defense agencies usually have more money to award new contracts for systems, technologies, and equipment when the defense budget is higher. Kratos Defense specializes in unmanned aerial systems, hypersonic technologies, C5ISR systems, propulsion and satellite communications. These fields frequently experience above-average growth when defense budgets increase. It stands to benefit immediately from increased funding, which prioritizes these next-generation capabilities over legacy systems.

Kratos Defense already has a solid backlog, which gives it near-term revenue visibility. Increased defense spending raises the possibility of future pipeline expansion and backlog conversion into funded contracts. To scale delivery and innovation more quickly, Kratos Defense can justify increasing production capacity, expanding facilities, and ramping up R&D efforts in response to rising funding expectations.

The proposed increase in military spending still requires approval from the Congress, and final budget allocations may differ from initial proposals. However, the overall upward trend in defense spending often leads to more, and larger, contracts in cutting-edge defense technologies, areas where Kratos Defense is well positioned. These contracts can materially influence the company’s revenues, backlog, stock performance and long-term growth prospects.

Defense Players Likely to Gain From Budget Expansion

Other defense companies which are expected to benefit from the rise in the U.S. defense budget are: 

Lockheed Martin LMT stands to benefit from a potential sharp rise in U.S. defense spending, as higher budgets would support military modernization and lead to more and larger contracts for major defense programs like fighter jets, missiles and naval systems.

RTX Corporation RTX stands to benefit from the proposed sharp increase in U.S. defense spending, as higher budgets would support long-term funding for missile defense, radar systems and advanced weapons programs where the company is a key supplier.

KTOS Stock’s Earnings Estimates

The Zacks Consensus Estimate for 2026 earnings per share indicates an increase of 38.43% year over year.

KTOS Stock Trades at a Discount

In terms of valuation, KTOS’ forward 12-month price-to-sales (P/S) is 13.06X, a discount to the industry’s average of 13.43X.

KTOS Stock’s Price Performance

In the past three months, KTOS’ shares have risen 40.7% compared with the industry’s 17.4% growth.

KTOS’ Zacks Rank

The company currently has a Zacks Rank #3 (Hold). 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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