Kratos Defense & Security Solutions, Inc. (KTOS): what the price assumes
In the published model solve dated 2026-Q2, anchored at $44.56, Kratos Defense & Security Solutions, Inc. (KTOS) is priced for today's economics sustained for ~28.9 years. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-06-27.
Generated: 2026-07-29 · Exported: 2026-08-01 · Source: https://boothcheck.com/report/KTOS
Headline
| Field | Value |
|---|---|
| Ticker | KTOS |
| Company | Kratos Defense & Security Solutions, Inc. |
| Current price | $44.56/sh |
| Composition | Service revenues 35% / Product sales 65% |
What The Price Assumes (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Must persist for | 28.9y |
| Multiple paid | 298x operating income |
Solve inputs: computed at a 11.1% cost of capital; growth searched up to the 25% self-funding ceiling; each 1pp moves the implied horizon ~3.4 years.
Reconcile: at the x-ray's 9.3% required return this reads ~23.1 years; the models below use their own rates.
How unusual the bet is: elevated
| Reference | Value |
|---|---|
| vs own history | +0.91σ |
| sustained it ~10 years at this level | 14% |
| implied end-window share | 1% |
Valuation X-Ray
Every valuation family lands below the price. The price therefore sits beyond what those standard frames encode.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 5.34x | 1 | expensive |
| Earnings | 9.94x | 2 | expensive |
| Relative | 3.67x | 5 | expensive |
| Growth | 1.65x | 1 | expensive |
Families that call it expensive: Asset, Earnings, Relative, Growth
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 9.1%); the inversion above states its own rate.
Per-Model Detail (n=9)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $0.00 | — | no | Negative/zero FCF — equity value floored at $0 |
| DCF Exit Multiple | Growth | $0.00 | — | no | Negative/zero FCF or EBITDA — equity value floored at $0 |
| Relative Valuation | Relative | $14.13 | 3.15x | yes | P/E 48.4x (blended: static sector reference 22x + trailing (TTM) 284x), scenarios: 39.1x / 48.4x / 57.7x (bear / base = reference held flat / bull), EV/EBITDA 30.8x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $1.69 | 26.37x | yes | BV/sh $18.18, ROE (TTM) 0.9%, ke 9.3% (excluded from median) |
| Two-Stage Excess Return | Asset | $0.89 | 50.07x | yes | 5yr excess ROE then converge to ke=9.3% (excluded from median) |
| Discounted Future Market Cap | Growth | $27.04 | 1.65x | yes | Rev $1.4B, growth 22% (input: historical growth; tapered), Terminal P/S: 4.8x / 5.9x / 7.0x (bear / base = today's held flat / bull, cap 12x) |
| Peter Lynch Fair Value | Relative | $5.95 | 7.49x | yes | EPS $0.17, growth 35% (input: historical EPS growth), PEG=8.12 (Overvalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $3.79 | 11.76x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $0.02B × (1−21%) / WACC 9.1% → EPV (no growth) |
| Residual Income | Asset | $0.63 | 70.73x | yes | BV $18.18 + 5yr PV of (ROE (TTM) 0.9% − Kₑ 9.3%) × BV; BV grows 0.6%/yr (excluded from median) |
| Graham Number | Asset | $8.34 | 5.34x | yes | √(22.5 × EPS $0.17 × BVPS $18.18) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $12.13 | 3.67x | yes | EBITDA $0.08B × sector EV/EBITDA 14.0x |
| FCF Yield | Earnings | — | — | no | — |
| SBC-Adj FCF Yield | Earnings | — | — | no | — |
| Ben Graham Formula | Earnings | $5.49 | 8.12x | yes | EPS $0.17 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $0.34 | 131.06x | yes | BV $18.18 × (ROIC 0.2% / WACC 9.1%) (excluded from median) |
| P/Sales Sector | Relative | $15.09 | 2.95x | yes | Revenue $1.42B × sector P/S 2.0x |
| PEG Fair Value | Relative | $6.38 | 6.98x | yes | EPS $0.17 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x |
| Earnings Yield | Earnings | $1.84 | 24.22x | yes | EPS $0.17 / required return 9.3% (Rf 4.3% + ERP 5.0%) (excluded from median) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net cash | $1.3b |
| Net debt / NOPAT (after-tax) | -70.90x (net cash) |
| Net debt / operating income (pre-tax) | -56.01x (net cash) |
| Share count CAGR (dilution) | 9.2% |
| Burning cash | yes |
Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.
Bullet Takeaways
- Kratos builds low-cost military hardware, target drones, the Valkyrie combat drone, tactical jet engines, hypersonic and rocket systems, competing on affordability rather than premium engineering in a defense budget tilting toward exactly those categories.
- The price is the defining risk: at a multiple of several hundred times its current operating income, the stock prices decades of flawless growth, because today's operating margin is barely above breakeven at 1.7%.
- Watch backlog and the cash burn: a record $2.01 billion backlog and a $14 billion pipeline are the fuel, but Kratos just raised $1.2 billion in equity to fund the buildout, diluting holders to chase the growth the price already assumes.
Bull Case
Start with the obvious risk, because the bull case has to earn its way past it: Kratos earns almost no profit today, with an operating margin of just 1.7%, and the price assumes that changes dramatically. The bull's answer is that the company is deliberately trading current margin for scale and market position in the fastest-growing corners of defense. The 10-K describes a growth philosophy where Kratos offerings and "affordability are an important competitive differentiator" on "large, new program and contract opportunities," and states the internal view that it is "better to have a large part" of a big program. Low-cost, high-volume defense hardware is a land-grab, and Kratos is grabbing land while margins are thin on purpose.
The backlog is the evidence the land-grab is working. Kratos exited the most recent quarter with a record consolidated backlog of $2.01 billion, $1.457 billion of it funded, on bookings of $605.2 million and a book-to-bill ratio of 1.6 to 1.0, meaning it is winning orders faster than it ships. The pipeline of opportunities has expanded to roughly $14 billion. Revenue grew 22.6% to $371.0 million in the quarter, with the Defense segment up 45.8% organically on hypersonic systems and Unmanned Systems growing on Valkyrie activity. A book-to-bill well above one is the leading indicator that the revenue line keeps climbing, and Kratos sits squarely in hypersonics, unmanned systems, and missile and space programs, the exact categories the Department of Defense is funding hardest.
The balance sheet is built to fund the buildout, which is the bull's structural point. Kratos carries roughly $1.46 billion in cash against minimal debt, a net-cash position that gives it the capacity to scale Valkyrie production and pursue the hypersonic drone program it is developing without a financing constraint. It raised that cash deliberately, completing a $1.2 billion equity offering in March 2026 to accelerate production. Management raised full-year 2026 revenue guidance to $1.7 billion to $1.76 billion on the strength of the bookings. Against defense-and-space peers Karman, Heico, and Astronics, Kratos is the affordability play in the highest-growth categories, and the bet is that as the volume programs mature, the thin margins widen and the company grows into a valuation that today looks impossible.
Bear Case
The structural fragility a holder should weigh is the capital structure itself, because the way Kratos funds its growth dilutes the very shareholders the growth is supposed to reward. In March 2026 the company sold roughly 14.3 million shares at $84.00 to raise about $1.2 billion, and the share count has been growing nearly 10% a year. A company that funds expansion by issuing equity is borrowing from future per-share value to buy present scale: even if revenue and total profit grow, the per-share claim is sliced thinner with each raise. The cash pile on the balance sheet is real, but it is shareholders' own diluted money, not cash the business generated, and a valuation already pricing decades of growth has no room to absorb continued dilution.
The profitability underneath the story is the hard number the multiple ignores. Kratos earns an operating margin of just 1.7%, so on a multiple basis the price sits at several hundred times current operating income, and the implied assumption is growth held at the self-funding ceiling for roughly three decades. The base rate for that is brutal: only about 14% of comparable fast-growers have sustained such a pace even ten years. The affordability strategy that wins the bull's land-grab is the same strategy that keeps margins razor-thin, because low-cost hardware is, by definition, low-margin hardware. The 10-K acknowledges results "may vary significantly from quarter to quarter," and a 1.7% margin leaves no buffer for a program delay, a cost overrun, or a bid protest.
The demand, however well-funded today, carries the full fragility of government contracting. The 10-K is explicit that the U.S. Government "provides a significant portion of our revenue, and our business could be adversely affected by changes in the fiscal policies of the U.S. Government," and that protracted competitive bidding and "competitor bid protests will continue," which can delay or cancel awards even after a successful bid. Backlog is a commitment, not cash, and defense priorities shift with budgets and administrations. The sell side is positive but the price has run ahead of even bullish targets: the mean target near $93 to $112 brackets today's price, with JP Morgan's June target at just $82 below it. The bet is not that Kratos fails. It is that the price pays for three decades of flawless, dilution-free execution from a company whose current margin is barely positive and whose growth is funded by issuing stock, and any stumble repriced against a several-hundred-times multiple has a very long way to fall.
Valuation
This is among the most aggressive valuations in the report-able universe, and the honesty of the section depends on naming that plainly. At today's price the market values Kratos at several hundred times its current operating income, which inverts to growth held at the self-funding ceiling for roughly three decades. That is not a forecast the company has earned; it is the assumption the price requires, and it sits well above what its fundamentals comfortably support. The relevant base rate is the sobering one: only about 14% of comparable fast-growers have sustained that pace even ten years, let alone thirty.
The method families could not disagree more completely, and the pattern is the entire story. The asset-value lens reads the price at more than six times where it lands, the earnings-power lens at nearly twelve times, the peer-multiple lens at more than four times, and even the forward-growth lens does not reach it. When no valuation family reaches the price, the price is a bet beyond what any standard frame supports. There is no valuation floor under this stock; it is pure narrative and momentum priced on the expectation that thin-margin, high-volume defense programs eventually compound into something the static methods cannot frame. The thin 1.7% margin is why the operating-income multiple is so extreme: the same revenue at a normalized defense margin would imply a far lower multiple, so the entire bet is that margins expand as the volume programs scale.
Solvency is genuinely strong, but it is strength the shareholders paid for. Kratos holds roughly $1.46 billion in cash against minimal debt, a net-cash fortress, but it built that fortress with a $1.2 billion equity raise that diluted holders nearly 10% in a year. So the balance sheet de-risks survival while the financing method erodes per-share value, which is the central tension. Against defense peers Karman and Heico, Kratos commands an even richer multiple on the strength of its backlog and hypersonic positioning, and the analyst targets near $93 to $112 sit around today's price with JP Morgan's at $82 below it. The street is underwriting the same long-duration, margin-expansion bet this framework isolates; the difference is that this report names it for what it is, a several-hundred-times multiple resting on three decades of assumed growth, rather than smoothing it into a target.
Catalysts
The first-quarter 2026 report drove the operating story forward but the stock fell on it, which captures the valuation tension. Revenue grew 22.6% to $371.0 million with a book-to-bill ratio of 1.6 to 1.0, record backlog of $2.01 billion, and a pipeline expanded to roughly $14 billion, and the Defense segment grew 45.8% organically on hypersonic systems. Management raised full-year 2026 revenue guidance to $1.7 billion to $1.76 billion, yet the shares sold off after the print, a sign the bar set by the multiple is hard to clear even on good results.
The capital raise is the catalyst that reshaped the share count. In March 2026 Kratos completed a roughly $1.2 billion public offering, selling about 14.3 million shares at $84.00, with proceeds earmarked to scale Valkyrie production. The trade-off is the catalyst to watch: the cash accelerates the buildout the bull case needs, but the dilution works against the per-share math, and how quickly the new capacity converts to profitable revenue is the test.
Program momentum is the forward driver. Kratos is developing a low-cost hypersonic drone capable of Mach 5-plus speeds, received a five-year MACH-TB contract that could reach $1.45 billion if all options are exercised, and continues to win unmanned and rocket-systems work. The sell side is broadly positive, with a Buy consensus and a mean target near $93 to $112, though JP Morgan's June target of $82 sits below the higher estimates. With the stock pricing decades of growth, each backlog and margin update is a high-stakes catalyst in either direction.
Peer Cohorts (Per Segment, With Filing Citations)
Kratos Government Solutions (KGS) (reported)
- MRCY (MERCURY SYSTEMS, INC.)
- FY2025 10-K: …new contracts to drive industry leading organic growth at target margins. 3. Margin Expansion - Drive comprehensive cost management efforts corporate-wide including improvement in gross margins across all programs and products. 4. Cash Release - Enhance our cash flow conversion, including improvements in delivery and…
- FY2025 10-K: …of valuable technology and intellectual property in order to participate in a government program. • The U.S. government or a defense prime contractor customer could require us to enter into cost reimbursable contracts that could offset our cost efficiency initiatives. • We anticipate that sales to our U.S. prime…
- LDOS (Leidos Holdings, Inc.)
- FY2025 10-K: …modernization and cyber; mission software; and managed health services. Our customers include the U.S. Department of War ("DoW"), the U.S. Intelligence Community, the U.S. Department of Homeland Security ("DHS"), the Federal Aviation Administration ("FAA"), the Department of Veterans Affairs ("VA") and many other…
- FY2025 10-K: …a team will help us win and perform the contract. Our relationships with our teammates, including whether we serve as the prime contractor or as a subcontractor, vary with each contract opportunity and typically depend on the program, contract or customer requirements, as well as the relative size, qualifications,…
- CACI (CACI International Inc)
- FY2025 10-K: …in which the customer-imposed contract type or terms appear to expose us to inappropriate risk or do not offer us a sufficient financial return, we may seek alternate arrangements or opt not to bid for the work. Essentially all contracts with the U.S. government, and many contracts with other government entities,…
- FY2025 10-K: …needs. Our proven Expertise and Technology and strong record of program delivery have enabled us to compete for and secure new customers and contracts, win repeat business, and build and maintain long-term customer relationships. We seek competitive business opportunities and have built our operations to support…
- SAIC (Science Applications International Corporation)
- FY2025 10-K: …management and operations, sustainment and security of the customers' entire IT infrastructure. Our long-standing customer relationships have enabled us to achieve an in-depth understanding of our customers' missions and provide differentiated service offerings to meet our customers' most complex requirements.…
- FY2025 10-K: …It uses a highly automated, cloud-hosted tool set to rapidly build, test and deploy solutions and works with customers to enhance solutions going forward. Costs associated with corporate functions that are not allocable to the reportable segments are presented as Corporate. See Note 16-Business Segments Information…
- DRS (Leonardo DRS, Inc.)
- FY2025 10-K: …ship propulsion systems, motors and variable frequency drives, force protection systems, and transportation and logistics systems for the U.S. military and allied defense customers. DRS is a leading provider of next-generation electrical propulsion systems for the U.S. Navy. We provide power conversion, control,…
- FY2025 10-K: …depreciation and amortization, occupancy costs, and purchasing, receiving and inspection costs. F. Costs to Obtain or Fulfill a Contract Costs to obtain a contract are incremental direct costs incurred to obtain a contract with a customer, including sales commissions and dealer fees, and are capitalized if material.…
- ESLT (ELBIT SYSTEMS LTD)
- FY2025 20-F: …solutions, head mounted displays, avionics, PGM sensors, aerostructures and next generation aerial C4I and intelligence-gathering products and systems that are at the core of network-centric and multi-domain operations. The Aerospace segment portfolio includes the following main capabilities: Unmanned Aircraft…
- FY2025 20-F: …22 This global trend has increased demand in the areas of C4ISR systems, cyber-defense systems, network centric information and operational systems, intelligence gathering systems, border and perimeter security systems, unmanned aircraft systems, unmanned surface vessels, autonomous systems, land and aerial precision…
- LHX (L3HARRIS TECHNOLOGIES, INC.)
- FY2025 10-K: …employment, labor and data privacy. The following describes significant regulations that may impact our businesses. For further discussion of risks relating to government regulations, see "Item 1A. Risk Factors" of this Report. Government Contracts. In fiscal 2025, the percentage of our revenue that was derived from…
- FY2025 10-K: …As of the end of fiscal 2025, our contractual backlog was $38.7 billion. We expect to recognize approximately 45% of the revenue associated with such contractual backlog by the end of fiscal 2026 and approximately 70% by the end of fiscal 2027, with the remainder to be recognized thereafter. See Note 1: Significant…
Unmanned Systems (US) (reported)
- AVAV (AEROVIRONMENT, INC.)
- FY2025 10-K: …growth platforms in the future, creating additional market opportunities. Effective May 1, 2025, we operate our business in two reportable segments: (1) Autonomous Systems and (2) Space, Cyber and Directed Energy. 3 Table of Contents Autonomous Systems Uncrewed Aircraft Systems ("UAS"). Our family of uncrewed…
- FY2025 10-K: …for counter uncrewed, next generation counter uncrewed system missile technology, XR/VR system for training, modeling and simulation, hardware in the loop simulations, C2 sensing and tracking, uncrewed maritime platforms, uncrewed aerial platforms, full spectrum cyber operations, tactical mission networks, multi-int…
- ESLT (ELBIT SYSTEMS LTD)
- FY2025 20-F: …solutions, head mounted displays, avionics, PGM sensors, aerostructures and next generation aerial C4I and intelligence-gathering products and systems that are at the core of network-centric and multi-domain operations. The Aerospace segment portfolio includes the following main capabilities: Unmanned Aircraft…
- FY2025 20-F: Elop. Based in Rehovot, Israel, Elbit Systems Electro-optics Elop Ltd. (Elop) designs, engineers, manufactures and supports a wide range of electro-optic and laser systems and products mainly for defense, space and homeland security applications for customers worldwide. ELS. Headquartered in Ramat HaSharon, Israel,…
- DRS (Leonardo DRS, Inc.)
- FY2025 10-K: …ship propulsion systems, motors and variable frequency drives, force protection systems, and transportation and logistics systems for the U.S. military and allied defense customers. DRS is a leading provider of next-generation electrical propulsion systems for the U.S. Navy. We provide power conversion, control,…
- FY2025 10-K: …and power generation and management are central to these priorities. Demand for our technologies is concentrated in areas of sustained priority for the DoW, including counter‑unmanned aircraft systems ("C-UAS"), advanced infrared sensing, network computing, and electric power and propulsion for next generation navy…
- LDOS (Leidos Holdings, Inc.)
- FY2025 10-K: …more than 120 countries, including people scanners, computed tomography carry-on baggage scanners, checked baggage scanners, and explosive trace detectors. We are also the primary supplier to CBP and other 4 Leidos Holdings, Inc. Annual Report Table of Contents PART I international customers of mobile, non-intrusive…
- FY2025 10-K: …across these reportable segments. NATIONAL SECURITY & DIGITAL Our National Security & Digital business provides leading-edge and technologically advanced services, solutions and products across substantially all U.S. federal government customers. Our advanced capabilities allow us to provide technology-enabled…
- LHX (L3HARRIS TECHNOLOGIES, INC.)
- FY2025 10-K: …our classified networks, and to the IT networks and related systems that we operate, maintain and secure for certain of our customers. We have implemented various measures to manage the risk of a security breach or disruption. See "Item 1C. Cybersecurity" in this Report for further discussion of our risk management…
- FY2025 10-K: $23 million recognized in connection with the monetization of legacy end-of-life assets aligned with our transformation and value creation priorities and LHX NeXt driven cost savings, partially offset by unfavorable mix. AR. Our AR segment includes missile solutions with propulsion technologies for strategic defense,…
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.
Sources
Kratos Q1 2026 results and March 2026 offering, 2026 · Kratos Q1 2026 results, 2026 · Kratos Q1 2026 balance sheet, 2026 · Kratos 2026 guidance, 2026 · Kratos March 2026 public offering, 2026 · TipRanks and JP Morgan analyst notes, 2026 · Kratos March 2026 offering, 2026 · TipRanks and JP Morgan analyst consensus, 2026 · Kratos program announcements, 2026 · TipRanks and JP Morgan analyst coverage, 2026