1 ‘Top Defense Stock to Consider Buying in January 2026’

Kratos Defense & Security Solutions Surges on Defense Spending Optimism

On January 8, shares of Kratos Defense & Security Solutions (KTOS) soared by nearly 14%, fueled by renewed enthusiasm in the defense sector. This rally followed the U.S. government's proposal for a substantial $1.5 trillion military budget for 2027, which aims to accelerate the modernization of the armed forces. The announcement sparked gains across defense stocks, with Kratos among the notable beneficiaries.

The surge was further propelled by former President Donald Trump’s remarks advocating for a defense budget well above $1 trillion to create what he described as a “Dream Military” for national security. Investors responded quickly to the prospect of increased defense spending. This momentum came shortly after Trump called for stricter oversight of major defense contractors, suggesting restrictions on stock buybacks, dividends, and executive compensation until companies boost investments in manufacturing and research.

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Kratos has welcomed these policy changes. Unlike many of its larger industry peers, the company does not issue dividends or buy back shares. Instead, it reinvests its resources into developing advanced, mission-ready technologies for modern defense needs. This approach aligns well with the government’s evolving priorities, making Kratos a standout in the sector. Let’s take a deeper look at KTOS stock in light of these developments.

Overview of Kratos Defense & Security Solutions

Headquartered in California, Kratos Defense & Security Solutions specializes in advanced defense technologies, systems, and software that serve military, national security, and select commercial applications. The company is committed to delivering innovative and cost-effective solutions, leveraging proven technology to accelerate the transition from concept to deployment while minimizing expenses and risks.

Kratos is particularly recognized for its ability to produce high-volume, low-cost products, making it a valuable partner for both the U.S. government and major defense contractors. Its offerings include satellite command-and-control software, virtualized ground systems, jet-powered drones, propulsion technologies, missile and radar electronics, and more.

Kratos’ Recent Performance and Market Position

With a market capitalization of approximately $19 billion, Kratos had a remarkable year in 2025. The company’s success was driven by robust demand for its unmanned aerial systems, strategic acquisitions, new collaborations, and a growing backlog of contracts amid increased global defense spending. KTOS shares have demonstrated impressive momentum.

Over the past twelve months, Kratos stock has surged 293%, significantly outperforming the S&P 500 Index’s 20% gain during the same period. In just the last month, KTOS climbed 52%, compared to a modest 2% rise in the broader market.

Highlights from Kratos’ Q3 2025 Earnings

In early November, Kratos reported strong third-quarter results for fiscal 2025, surpassing expectations on both revenue and earnings. The company posted $347.6 million in revenue for the quarter, a 26% increase year-over-year and well above analysts’ forecast of $320.8 million. Adjusted earnings per share reached $0.14, up 27% from the previous year and exceeding the projected $0.12.

Growth was evident across all business segments. The Unmanned Systems division generated $87.2 million in revenue, a 36% annual increase, reflecting heightened demand for drone and autonomous technologies. The Government Solutions segment contributed $260.4 million, up 23% year-over-year, supported by ongoing contract wins and effective program execution for defense and security clients.

The company’s cash flow reflected continued investment in growth. During the third quarter, Kratos used $41.3 million in free cash flow for operations, including $28 million in capital expenditures to expand production, advance development programs, and support long-term growth strategies.

Order activity remained robust, with consolidated bookings totaling $414.1 million for the quarter, resulting in a book-to-bill ratio of 1.2. The total contract backlog reached $1.48 billion as of September 28, up from $1.414 billion at the end of June. Additionally, the company’s pipeline of bids and proposals expanded to $13.5 billion, compared to $13 billion three months earlier.

Looking forward, Kratos’ leadership anticipates continued momentum for the remainder of fiscal 2025. The company projects full-year revenue between $1.32 billion and $1.33 billion, with adjusted EBITDA expected to range from $114 million to $120 million, reflecting confidence in ongoing demand and execution across its core programs.

Analyst Sentiment on KTOS Stock

Wall Street remains optimistic about Kratos, assigning the stock a “Strong Buy” consensus. Of the 18 analysts covering KTOS, 13 recommend a “Strong Buy,” one suggests a “Moderate Buy,” and four rate it as a “Hold.” Despite the stock’s substantial gains, analysts believe there is still room for further appreciation.

Although KTOS has already surpassed the average price target of $97.88, the highest target on record is $125, indicating potential for an additional 9% upside from current levels.