Frank Curzio
Founder & CEO of Curzio Research, Wall Street Unplugged Host
Kratos Defense & Security Solutions is positioned for defense spending that has to keep growing. With the military effectively serving as collateral for US debt, defense budgets will not be cut by whoever wins in November. Drones and smaller systems names such as Kratos and its peers are better places to look than the big primes, which are a political football right now. x.com x.comÂ
Kratos is the most ambitious 10x case because defense spending is shifting toward drones, autonomous aircraft, hypersonics, propulsion and cheaper systems built at scale, areas it has spent years preparing for. It has a roughly $15 billion bid pipeline against under $2 billion of annual revenue. If even a few programs reach large-scale production, the company could look completely different in 10 years. x.comÂ
Kratos and Kraken Robotics are falling on sector macro, not business decline, so a strong year-end close looks likely. Both hit 52-week lows, down 68% and 64% from this year's highs. Per Bernstein, peace headlines and a stalled US budget put defense at a 12% discount to the S&P, but it expects the 2027 budget to rise over 10%. Raymond James notes tax-loss selling hits YTD losers into mid-October, and they often lead the rebound. Kratos has a record $2.08B backlog; Kraken guides $290-320M. x.comÂ
Kratos's capital-intensive business has weak financial support for the investment it requires. Its 23% gross margin is unimpressive, and operating profitability is extremely thin. x.comÂ
Defense stocks such as Kratos, AeroVironment, Ondas, Northrop Grumman and L3Harris are trading as if global leaders had turned into pacifist hippies, which is probably not the case. x.comÂ
Kratos Defense looks overlooked, with an average analyst price target of $102.76, more than 100% above the current price. x.comÂ
Kratos looks expensive against its earnings, trading at about 49x versus the usual 24x for aerospace and defense suppliers. At 24x next year's $1.13 EPS, give or take 12%, fair value sits around $23.92-$30.45, so the $54.96 price is 81% above fair. This is a valuation read off reported earnings and estimates only, with no fundamental work. x.comÂ
Government spending is defense's version of AI hyperscaler capex but more dependable, and the market isn't pricing it in. Global defense is seen at $3T+ for 2027 versus about $1T of hyperscaler capex, and the Pentagon seeks $80B in wartime spending on top of a $1.5T budget. With Lockheed Martin, Northrop Grumman, Kratos, AeroVironment, AEVEX and Kraken Robotics 24-58% off highs, capital could rotate back soon, especially if institutions diversify from AI, rewarding contrarians in 3-6 months. … Show more
Kratos is becoming the government's default answer for drones, counter-drone, space sensors and hypersonics at once, landing contracts every few days. Over about a week and a half it won roughly $100M sole-source to move a Space Domain Awareness sensor program into production, about $400M in funding tied to hypersonics and other programs, and a $156M sole-source NNSA counter-drone IDIQ, over $650M in all. It also opened a new 167,000 sq ft Pennsylvania plant to keep up with demand. x.comÂ
Kratos Defense earns too little to justify its executive pay, with first-half 2026 operating income strikingly low for an entire defense company. Its CEO's 2026 pay totals $10.8 million: $1 million in salary, $8 million in stock, a $1.5 million cash incentive and $88,000 in perks. x.comÂ
AeroVironment, Kratos, Axon, Lockheed Martin and Palantir win as the FY2027 defense budget is projected at $1.5 trillion, about $400 billion above this year. AeroVironment's revenue rose 143% with a record $1.1B funded backlog as the Pentagon orders Switchblade drones by the thousands. Kratos has a record $2B backlog for low-cost autonomous jets. Axon's revenue rose 34% with $14.3B in future bookings. Lockheed's backlog hit $186.4B. Palantir is the AI software layer under autonomous warfare. … Show more
