Kratos Defense & Security Solutions (NASDAQ: KTOS) stock gained 9.7% through 11:45 a.m. ET, Monday after JonesResearch analyst Josh Sullivan initiated coverage of the defense stock with a buy rating and a $150 price target.
If Sullivan is right, Kratos stock could nearly double this year.
There’s not much detail available on the new rating, other than the fact that it happened. Neither TheFly.com nor StreetInsider.com, my two go-to sources for ratings news, know anything more than the rating and the price target.
What we do know about Kratos comes primarily from the company’s Nov. 4 earnings report on fiscal Q3 2025 results. In that report, Kratos said sales grew 26% year over year, with 36% growth in sales of “unmanned systems” — i.e., drones. Kratos also reported a quarterly book-to-bill ratio of 1.2, foreshadowing even stronger sales growth to come, and raised its guidance for fiscal 2026 organic revenue growth to 15% to 20%, accelerating to 18% to 23% in fiscal 2027.
The company was profitable in Q3, earning $0.05 per share, and has earned $0.10 per share so far this year, but Kratos’s free cash flow is negative — and management expects it to remain negative through the end of this year.
Is that good enough to drive Kratos stock from $79 (Friday) to $150 (a year from now)? I’m not sure it is. 15%, 18%, 20%, or 23% would all be slower growth rates than what Kratos produced in Q3. And if the company’s only earning, say, $0.20 a year, that’s a P/E ratio of more than 400x at the stock’s current price.
JonesResearch may think 400 times earnings is a reasonable price for a growth stock with slowing growth? I don’t.
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