Kratos and Unity: AI-Driven Growth Potential
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Jan 22 2026
0mins
Source: Fool
- Drone Market Growth: Kratos Defense & Security's uncrewed systems revenue grew by 36% year-over-year, with the UAV market expected to quadruple by 2032, indicating a strong trend in defense spending that could lead to substantial revenue growth for the company.
- Increased Defense Spending: The U.S. Department of Defense has allocated 47% more to hypersonic systems than two years ago, providing Kratos with significant market opportunities that could further enhance product value and customer demand.
- Unity Software Recovery: Under new CEO leadership, Unity Software has successfully returned to revenue growth, with free cash flow increasing by 31% year-over-year in the most recent quarter, showcasing its strong recovery and market leadership in game development.
- Cross-Industry Expansion Potential: Unity is not only excelling in the gaming sector but is also making significant strides in the automotive industry, indicating substantial potential for business expansion that could drive future growth.
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Analyst Views on KTOS
Wall Street analysts forecast KTOS stock price to fall over the next 12 months. According to Wall Street analysts, the average 1-year price target for KTOS is 108.69 USD with a low forecast of 80.00 USD and a high forecast of 150.00 USD. However, analyst price targets are subjective and often lag stock prices, so investors should focus on the objective reasons behind analyst rating changes, which better reflect the company's fundamentals.
13 Analyst Rating
11 Buy
2 Hold
0 Sell
Strong Buy
Current: 112.670
Low
80.00
Averages
108.69
High
150.00
Current: 112.670
Low
80.00
Averages
108.69
High
150.00
About KTOS
Kratos Defense & Security Solutions, Inc. is a technology, products, system and software company addressing the defense, national security, and commercial markets. It operates through two segments: Kratos Government Solutions (KGS) and Unmanned Systems (US). The KGS segment includes its microwave electronic products, space, satellite and cyber, training solutions, command, control, communication, computing, combat, intelligence surveillance and reconnaissance (C5ISR)/modular systems, turbine technologies, and defense and rocket support services operating segments. The US segment consists of its unmanned aerial, unmanned ground, unmanned seaborne and related command, control and communications system businesses. Its KGS and US segments provide products, solutions and services for mission-critical National Security programs. KGS and US customers primarily include National Security-related agencies, the DoD, intelligence agencies and classified agencies, and others.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
Kratos Defense Stock Drops 5% Despite Analyst Upgrade
- Stock Decline: Kratos Defense stock fell 5% by 12:12 p.m. ET on Wednesday, currently priced at $111.83 with a market cap of $20 billion, reflecting market concerns over its future profitability.
- Analyst Upgrade: KeyBanc analyst Michael Leshock raised Kratos' price target by nearly 50% to $130 per share, citing significant growth opportunities in the space and defense sectors expected to persist through 2026.
- Revenue Growth: Despite achieving a 12% annual revenue growth over the past five years, increasing from under $750 million to nearly $1.3 billion, Kratos reported only $20 million in net income, significantly lower than the $79.6 million earned in 2020, indicating profitability issues.
- Cash Flow Concerns: Kratos' free cash flow over the past 12 months is negative $93.3 million, indicating ongoing cash consumption; while analysts forecast earnings of $60 million by 2026, the stock's staggering forward P/E ratio of 333 times raises concerns about overvaluation.
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KeyBanc Raises Kratos Price Target by 50%
- Price Target Increase: KeyBanc analyst Michael Leshock raised Kratos' price target by nearly 50% to $130 per share, reflecting optimism about the space and defense sectors, despite a 5% drop in stock price on the same day.
- Revenue Growth: Kratos has achieved a 12% annual revenue growth over the past five years, increasing from less than $750 million to nearly $1.3 billion, indicating potential in the rapidly expanding defense market, although profitability remains weak.
- Cash Flow Situation: Despite revenue growth, Kratos reported negative free cash flow of $93.3 million over the past 12 months, indicating ongoing cash consumption and raising concerns about future financial health.
- Earnings Forecast: Analysts predict Kratos will earn $60 million by 2026, tripling current earnings; however, with a $20 billion market cap, this results in a staggering forward P/E ratio of 333, highlighting significant overvaluation risks.
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