Kratos Stock Rally Fueled by Pentagon Defense Exposure — But Valuation Concerns Linger

The Catalyst Behind Friday’s Surge

Kratos Defense & Security Solutions (NASDAQ: KTOS), a prominent manufacturer in the unmanned military aircraft sector, experienced a 4.5% intraday jump on Friday. The movement traces back to KeyBanc analyst Michael Leshock, who unveiled an overweight recommendation this morning with a $90 price target.

What’s Driving the Optimism?

Leshock’s thesis centers on Kratos’s strategic positioning within expanding Pentagon budgets. The analyst highlights the company’s involvement in several high-priority defense initiatives: hypersonic missile programs like Golden Dome, collaborative combat aircraft programs (commonly referred to as “loyal wingmen”), and autonomous drone systems designed to operate alongside piloted fighter jets.

The company’s track record supports this narrative. Kratos has established itself as a reliable supplier of cost-effective, rapid-deployment drone technologies for both practice scenarios and operational use. Its XQ-58A Valkyrie platform, designed as a loyal wingman concept, stands alongside offerings from privately-held competitors General Atomics and Anduril Industries as a viable candidate for future Pentagon procurement contracts.

The Valuation Question That Troubles the Market

Here’s where the analysis gets contentious. Leshock justifies the buy rating using an “8.5x blended 2026E/2027E price-to-sales multiple versus a 1–5x historical range.” On the surface, this comparison raises eyebrows. If Kratos has historically commanded a P/S ratio between one and five times, suggesting valuations significantly above that range seems counterintuitive for a buy recommendation.

The situation becomes even more questionable when you factor in current trading levels: Kratos presently trades at roughly nine times trailing sales. This means the stock is already priced at premium multiples, making the case for additional upside through the analyst’s recommended valuation framework difficult to justify.

Investment Takeaway

While the Pentagon’s defense modernization narrative provides a compelling growth story, investors should weigh the enthusiasm against current market pricing. The valuation metrics suggest caution may be warranted before jumping into positions at these levels.