Defense Stocks to Watch: L3Harris and Kratos Lead the Way

L3Harris Technologies and Kratos Defense & Security Solutions are expected to benefit from increased global military spending, which reached $2.7 trillion in 2024, up 10% from 2023. L3Harris is expanding its technological efforts and has partnered with Joby Aviation for eVTOL technology, while Kratos has seen a 17% YOY revenue growth and a top-line beat of $45 million in its mid-year earnings report. Both companies have a strong pipeline of contracts, with Kratos having a pipeline of about $13 billion.

Global military expenditure surged by nearly 10% between 2023 and 2024, reaching $2.7 trillion [1]. This significant increase, driven by ongoing conflicts in Eastern Europe and the Middle East, presents a substantial opportunity for defense industry companies. Two notable beneficiaries of this trend are L3Harris Technologies and Kratos Defense & Security Solutions.

L3Harris Technologies

L3Harris Technologies Inc. (NYSE: LHX), a defense industry giant with a market cap above $50 billion, has been expanding its technological efforts rapidly. The company recently announced a partnership with electric vertical takeoff and landing (eVTOL) firm Joby Aviation Inc. (NYSE: JOBY), opening new avenues in the fast-growing eVTOL space [1]. This strategic move marks a crucial shift toward militarization for this technology.

L3Harris also reported strong earnings in its second quarter of 2025, handily topping analyst predictions for earnings and revenue. The company's efforts to develop tools for the Trump administration's "Golden Dome" project and other initiatives have driven this success [1]. The firm's integration with Aerojet Rocketdyne has yielded impressive results, with production and deliveries doubling, leading to record quarterly revenue for this business.

Kratos Defense & Security Solutions

Kratos Defense & Security Solutions Inc. (NASDAQ: KTOS) also reported a successful mid-year earnings report. Revenue grew by 17% year-over-year (YOY), leading to a top-line beat of more than $45 million, and earnings came in above analyst expectations [1]. The success of the company's Valkyrie tactical drone in both the United States and international applications has driven this performance.

Kratos has a robust pipeline of defense contracts, with a total of about $13 billion in bids. The Poseidon program, a $750 million military-grade hardware initiative, is a key part of this pipeline. As the sole prime contractor, Kratos is expected to begin production in mid-2027, with revenue ramping up as a steady-state cash flow engine [2].

Analyst Sentiment

Analysts are bullish on both companies. For L3Harris, 13 out of 18 analysts rate it a "Buy," with earnings expected to rise by more than 12% in the coming year [1]. For Kratos, 14 out of 16 analysts support a "Buy" rating, with a 30-40% upside potential [2]. However, Kratos' stock has seen a significant rally of more than 160% year-to-date (YTD), sending its value metrics through the ceiling.

Conclusion

The increased global military spending presents a substantial opportunity for defense industry companies. L3Harris and Kratos Defense are well-positioned to benefit from this trend, with strong earnings reports, robust contract pipelines, and analyst support. Investors should closely monitor these companies as they navigate the evolving defense landscape.

References:
[1] https://www.marketbeat.com/stock-ideas/next-gen-defense-3-stocks-riding-the-new-global-arms-race/
[2] https://www.ainvest.com/news/kratos-defense-security-solutions-catalyst-driven-play-evolving-defense-landscape-2508/