Kratos Making Good on the Growth Story

Research evidence excerpt

J P M O R G A N

North America Equity Research

05 August 2026

Kratos

Overweight

KTOS, KTOS US

Price (04 Aug 26):$51.87

Making Good on the Growth Story

▲Price Target (Dec-27):$86.00

Prior (Dec-26):$82.00

Kratos delivered revenue well ahead of expectations, continuing to demonstrate its

potential for growth, with contributions from several areas. Hypersonics, KTT,

microwave, and space all grew ~30% or more organically with further runway

ahead. Combined with contributions from the Nomad and Orbit deals, plus a

growing pipeline of opportunities, we continue to see a compelling path forward.

We are raising our 2026 estimates to the high end of the guidance range and

continue to have a bias towards the upside, modeling double-digit growth through

2030. We are establishing our Dec-27 price target of $86, which is based on 5.5x

our 2028E sales of $2.8b.

Expecting strong growth to continue through year-end. We expect growth

to continue accelerating, modeling 37% in Q3 and 44% in Q4. This brings our

Q3 and FY26 revenue to the higher end of the new ranges, modeling $475m and

$1.8b, respectively. Margins should improve as programs ramp and FX

headwinds moderate, with our model showing a 9.6% adj. EBITDA margin for

the year. While the 2026 adj EBITDA guide is up, the sales guide is up more,

yielding a lower expected margin rate of 9.8% at the midpoint. A strong shekel

is generating an FX headwind, but we are not overly focused here, as the 2026

margin forecast is down just 20 bps vs prior and we should see a bounce in Q4.

Cash generation remains secondary to growth for now, as Kratos prioritizes

investment and has ample liquidity. We forecast a $105m cash outflow in 2026,

including ~$150m of capex.

KGS has a deep bench of growth programs. . . Hypersonics remains the

headliner, with revenue expected to increase from roughly $400m in 2026 to

$700m in 2027 with further growth beyond. KTT is another meaningful

contributor with both turbojet and turbofan engines. Starting with the smaller

turbojets, mgmt expects Spartan production to reach 3k in 2027 and 5k in 2028

at an average price of $50k, supporting revenue of ~$150m and ~$250m in

2026 and 2027, respectively.…