Is KTOS Stock a Buy, Hold or Sell After a 150% One-Year Surge?

Kratos Defense & Security Solutions, Inc. KTOS shares have rallied 150% over the past year compared with the Zacks Aerospace-Defense Equipment industry’s growth of 44.9%. KTOS remains the U.S. Army’s primary unmanned aerial target drone provider, with its growth prospects backed by America’s stable funding provisions.

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Other defense equipment stocks like Curtiss-Wright CW and Teledyne Technologies TDY have increased 139.1% and 45.8%, respectively, over the past year. Curtiss-Wright is expected to continue to benefit from the naval defense market, backed by steady government funding in defense. Teledyne Technologies is witnessing strong demand from the defense sector, particularly in Europe, driven by rising regional defense spending.

Considering Kratos Defense’s outperformance relative to its industry, investors may be wondering whether now is a good time to add the stock to their portfolios. Let’s examine the factors that contributed to the share price gain and assess the stock’s investment prospects to make an informed decision.

Tailwinds for KTOS Stock

Kratos Defense is a key provider of unmanned aerial target drones used by the U.S. and allied forces for weapons testing, training and combat simulation. These drones are built to achieve high speeds, execute complex maneuvers, and replicate sophisticated threat scenarios, making them essential for modern military training. Their cost-efficiency and adaptability also drive consistent demand, causing defense agencies to depend on Kratos Defense for recurring, long-term testing and training contracts.

In March 2026, Kratos Defense was selected by the Naval Surface Warfare Center, Port Hueneme Division for production and delivery of up to 36 Oriole solid rocket motors and three Thrust Vector Control nozzle kits. This $49 million contract is expected to strengthen its revenue visibility and strategic positioning in high-growth defense segments.

Kratos Defense’s collaboration with Airbus to prepare two XQ-58A Valkyrie drones for their first flight with a European mission system marks a significant step toward expanding its unmanned combat technology into international markets. This initiative positions the company not only as a drone manufacturer but also as a key enabler of next-generation autonomous air combat systems globally.

In March 2026, Kratos Defense received a $7 million Production Contract Award for a Counter-UAS System designed to detect, track and classify threats, including low-profile unmanned aerial systems, cruise missiles, and other aerial systems. This contract strengthens the company’s position in the rapidly growing counter-drone defense market, while also adding to its production backlog and revenue visibility.

Major Headwinds for KTOS

Although Kratos Defense shows notable growth prospects, it continues to face certain obstacles. One such obstacle is supply-chain disruption stemming from raw material shortages, which continue to affect the broader defense sector and could adversely impact the company’s operations.

Higher costs for key inputs such as materials, parts, supplies, and external services (including consultants, subcontractors, and vendors) have materially increased the company’s cost base, potentially weighing on operations, margins and financial forecasts.

Estimates for KTOS Stock

The Zacks Consensus Estimate for 2026 and 2027 earnings per share (EPS) indicates an increase of 40% and 37.3%, respectively, year over year.

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The Zacks Consensus Estimate for Curtiss-Wright’s 2026 and 2027 EPS indicates an increase of 12.55% and 10.85%, respectively, year over year. The consensus estimate for Teledyne Technologies' 2026 and 2027 EPS implies an increase of 8.46% and 8.15%, 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 25.2%.

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KTOS’ Return on Equity Lower Than Industry

The company’s trailing 12-month return on equity of 4.96% is lower than the industry average of 12.86%. Return on equity, a profitability measure, reflects how effectively a company utilizes its shareholders’ funds to generate income.

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KTOS Stock Trades at a Discount

In terms of valuation, KTOS’ forward 12-month price/sales (P/S) is 7.64X, a discount to the industry’s average of 11.73X.

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What Should an Investor Do Now?

Kratos Defense is a leading provider of unmanned systems and defense technologies, securing steady demand through advanced drones used in military testing, training, and combat simulation. The company is strengthening its growth outlook through new missile, counter-drone, and international programs, including its collaboration with Airbus, thereby positioning itself in next-generation defense markets.

Given its poor ROE and recent challenges, new investors may wait for a better entry point. Investors who already own this Zacks Rank #3 (Hold) stock may consider retaining their position, supported by the company’s strong earnings growth outlook. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Teledyne Technologies Incorporated (TDY): Free Stock Analysis Report

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

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