Palantir Technologies (PLTR) has captured Wall Street’s imagination with its AI-powered defense solutions in 2024. The tech stock has surged over 300% in the past year, valuing the company at a market capitalization of $165 billion. Palantir is forecast to end 2025 with sales of $3.5 billion and free cash flow of $1.16 billion. This means that PLTR is among the most expensive stocks on the planet. Plus, the average target price for Palantir stock is $46.41, which is 40% below current levels.
However, San Diego-based Kratos Defense & Security (KTOS) is another defense contractor building a portfolio of next-generation military technologies. It offers solutions in verticals such as unmanned aerial systems, space communications, and cybersecurity.
With a market cap of $5.1 billion, Kratos might emerge as a dark horse in the defense industry due to its growing ties with intelligence agencies and widening footprint in terrestrial and space-based defense systems. So, let’s see why this under-the-radar company is positioning itself as the next breakout in defense tech.
A Strong Performance in Q3
In the third quarter of 2024, Kratos Defense & Security reported revenue of $275.9 million, which was within the company’s guidance. In the year-ago period, its sales stood at $274.6 million. It reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $24.6 million while operating cash flow stood at $6.1 million.
Kratos is forecast to grow its sales from $1.03 billion in 2023 to $1.14 billion in 2024. It also expects to increase sales by at least 10% year over year in 2025.
Significant contract awards and opportunities should also support Kratos in 2025. Earlier in January, the company was selected for a $1.45 billion contract for work on a hypersonic test bed. This is the largest contract it has ever won. Kratos also just won a $100 million award for a hypersonic system program. These contracts could push Kratos’ growth rate above the current 10% forecast for 2026.
Further, it is focused on infrastructure expansion, including an Israel-based manufacturing facility, a microwave products facility in India, and a hypersonic system production facility in the U.S.
The company’s military program achievements include successful tests of the Zeus rocket motors, a new hypersonic system contract, and positive developments in drone programs. The Marine Corps successfully tested the Valkyrie drone, and both Athena and Apollo drone programs are now secured.
Currently, Kratos manufactures 165 jet drones annually and can scale to 400 units, positioning it as a leader in unmanned systems. The contract mix shows strong government ties, with 67% of revenue from the U.S. federal government.
What Is the Target Price for KTOS Stock?
In early 2025, Wall Street veteran Stephen Guilfoyle highlighted Kratos Defense as a potential breakout defense stock, following his successful Palantir prediction. After doubling in 2023 and gaining 30% in 2024, Kratos secured major contracts, driving its stock up 30% so far in the year to date.
Analysts tracking KTOS stock expect sales to grow to $1.28 billion in 2025. Comparatively, adjusted earnings per share are forecast to expand from $0.42 in 2023 to $0.58 in 2025. So, despite its enticing growth estimates, KTOS stock is not cheap. It is priced at 4x forward sales and 57.5x forward earnings.
Out of the 12 analysts tracking the tech stock, seven recommend “Strong Buy,” one recommends “Moderate Buy,” and four recommend “Hold.” The average target price for KTOS stock is $29.18, down almost 15% from current levels.
