A Member of Pat McKeough’s Inner Circle recently asked for his advice on a high-growth U.S. defense technology company focused on unmanned systems, space, hypersonics, propulsion, and advanced microwave electronics for national security customers.
Pat likes the high‑growth exposure to next‑generation defense technologies, a large, growing backlog and rising earnings. The firm also benefits from alignment with long‑term national security priorities. However, Pat notes the stock trades at a very rich earnings multiple.
Kratos Defense & Security Solutions (Symbol KTOS in New York; www.kratosdefense.com) is a U.S.-based company that develops and produces systems for defence and communications.
The company has two main business segments: Kratos Government Solutions (KGS), and Unmanned Systems (UAS).
KGS mainly serves the U.S. defence department, intelligence agencies, and allied international governments. It is Kratos’s largest segment, contributing about 75% of its sales. Overall, product sales contribute 63% of KGS’s revenue; with maintenance services contributing the remaining 37%.
Kratos has several business areas:
- Command, control, communications, computing, and surveillance & reconnaissance (C5ISR). That includes command posts, hardware and subsystems for missions, and systems integration
- Unmanned aerial systems such as the XQ-58 Valkyrie (an unmanned aerial combat aircraft), and the BQM-177A aerial target drone
- Satellite/space ground systems and communications, with the company providing ground station equipment, virtual ground systems, and satellite communications modules
- Microwave and RF electronics for radar, missiles, and satellite communications
- Simulation, training and immersive systems for military personnel
- Cybersecurity, electronic warfare, and critical infrastructure security
- Hypersonics, propulsion and missile-defence support
In November 2025, Kratos announced the acquisition of Orbit Technologies for $356.3 million in cash. Orbit is a global provider of satellite-based communication systems for mobile and unmanned aerial, seaborne, undersea and land systems.
Meanwhile, across all its markets, Kratos continues to sign new contracts:
Most recently, in April 2026, it won a contract with a total potential value of $446.8 million, contingent on the exercise of all options. Kratos will serve as the prime contractor supporting the U.S. Space Force’s Space Systems Command for the Ground Management and Integration (GMI) agreement on the Resilient Missile Warning and Tracking (MWT) program. The contract covers development, deployment, and sustainment of systems to support detection of advanced missile threats, including hypersonic glide vehicles.
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Kratos’ strong balance sheet is a big plus for Kratos
In the three months ended March 29, 2026, revenue rose 22.6%, to $371.0 million from $302.6 million a year earlier. Revenue rose due to strong organic growth in Unmanned Systems and Government Solutions, bolstered by contributions from recent Orbit Technologies and Nomad acquisitions.
Excluding one-time items, earnings rose 33.3%, to $29.1 million, or $0.16 a share, up from $21.8 million, or $0.12. Earnings rose due to higher overall revenue volumes, a favorable business mix, and improved operating margins across key divisions like Unmanned Systems.
Kratos’ current order backlog is a record $2.01 billion.
The company’s balance sheet is strong: it holds $1.5 billion in cash and has no long-term debt.
Kratos’s outlook is positive given it sells into expanding markets. Meanwhile, the stock is up 202.4% over the last two years, and trades at a very high 81.5 times its forecast 2026 earnings of $0.76 per share.
Recommendation in Pat’s Inner Circle: Kratos Defense & Security Solutions is okay to hold, but only for aggressive investors.
