Is KTOS Stock a Smart Investment Option Before Q4 Earnings Release?

Kratos Defense & Security Solutions KTOS is expected to report fourth-quarter 2025 results on Feb. 23, after market close. 

The Zacks Consensus Estimate for earnings is pegged at 14 cents per share, indicating year-over-year growth of 7.69%. The Zacks Consensus Estimate for revenues is pinned at $328.25 million, indicating growth of 15.95% from the year-ago reported figure.

KTOS’ Earnings Surprise History

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

What Our Quantitative Model Predicts

Our proven model does not predict an earnings beat for Kratos Defense this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here as you will see below.

Earnings ESP: The company’s Earnings ESP is 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Currently, Kratos Defense carries a Zacks Rank #2. 

You can see the complete list of today's Zacks #1 Rank stocks here.

Stocks Worth a Look

Some stocks in the same sector that have the combination of factors indicating an earnings beat are Astronics ATRO and Draganfly DPRO. ATRO and DPRO have an Earnings ESP of +10.61% and +4%, respectively. Both stocks carry a Zacks Rank #2 at present.

Factors That Might Have Impacted KTOS’ Q4 Performance

Solid revenue growth from increased target drone production activity is likely to have bolstered the top line of the Unmanned Systems business segment in the fourth quarter.

The company’s quarterly performance is expected to have benefited from organic revenue growth in its defense rocket support, space training and cyber businesses. 

The opening of the new 10,000-sq-ft engine overhaul facility in British Columbia is expected to have benefited Kratos Defense by expanding its maintenance, repair and overhaul (“MRO”) capacity. This is likely to have driven higher service revenues and improved margins.

The new 60,000 sq ft Jerusalem facility might have benefited Kratos Defense in the fourth quarter by expanding microwave and RF production capacity, improving efficiency, and accelerating delivery of defense components. This is expected to have driven higher revenues and further strengthened its competitive position.

During the fourth quarter, the company opened the new engine manufacturing facility in Auburn Hills, MI. The new 22,500 sq ft facility is expected to have expanded Spartan engine production capacity, improved efficiency and accelerated deliveries, positioning the company to meet rising defense demand and boost revenues.

KTOS Stock Price Performance

In the past three months, the stock has returned 30.9% compared with the industry’s growth of 16.1%.

KTOS Stock Trading at a Discount

Kratos Defense is currently trading at a discount compared to its industry on a forward 12-month P/S basis.
 

Astronics and Draganfly are also trading at a discount compared to their industry on a forward 12-month P/S basis.

KTOS Stock’s Poor ROIC

The image below shows that the stock’s trailing 12-month return on invested capital (ROIC) lags the peer group’s average return. This suggests that the company's investments are not yielding sufficient returns to cover its expenses.

Investment Thesis

Kratos Defense is one of the leading providers of unmanned aerial target drones for U.S. and allied militaries, with its strong reputation and proven technology driving consistent contract wins, strategic partnerships, global expansion and long-term competitiveness.

Kratos Defense is set to benefit meaningfully from this development as its Valkyrie UAS becomes a core platform in the U.S. Marine Corps’ Collaborative Combat Aircraft program led by Northrop Grumman. The partnership also accelerates operational deployment, improving near-to-medium-term cash flow visibility and enhancing investor confidence in KTOS’ long-term defense growth prospects.

The company continues to face supply-chain challenges stemming from raw material shortages, which are affecting the broader defense sector and may impact its operations.

End Note

Kratos Defense is strengthening its growth outlook through leadership in unmanned systems, validation of its Valkyrie UAS in a key Marine Corps program, and expanding roles in defense, space and aviation markets.

Given its earnings growth projection, better price performance, and discounted valuation, new investors may consider adding KTOS stock to their portfolio right now.  

 

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This article originally published on Zacks Investment Research (zacks.com).

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