Aerospace and defense company Kratos (NASDAQ: KTOS) met Wall Street’s revenue expectations in Q3 2026, with sales up 35.7% year on year to $471.8 million. The company expects next quarter’s revenue to be around $495 million, coming in 1.4% above analysts’ estimates. Its non-GAAP profit of $0.24 per share was 15.9% above analysts’ consensus estimates.

Is now the time to buy KTOS? Find out in our full research report (it’s free for active Edge members).

StockStory’s take

Kratos delivered third-quarter results in line with Wall Street’s revenue expectations, but the market reacted negatively, with shares declining after the announcement. Management attributed the quarter’s performance to robust demand across its core defense technology segments, particularly in hypersonics, propulsion systems, and unmanned systems, despite ongoing supply chain and labor constraints. CEO Eric DeMarco cited the company’s strong booking momentum, underscored by a 2.2:1 book-to-bill ratio and record backlog, as evidence of accelerating customer demand. DeMarco emphasized, “Our Q3 report includes a consolidated revenue growth rate of 35.7%, organic growth of 23.2%, bookings of $1.04 billion, a book-to-bill ratio of 2.2:1, and a record backlog of $2.6 billion.”

Looking forward, Kratos’ guidance reflects confidence in continued high organic growth, driven by anticipated increases in drone and engine production as well as new program wins in hypersonics and space. Management pointed to the generational recapitalization of the U.S. and allied defense industrial bases as a key tailwind, while also noting the company’s investments in robotics and automation to offset persistent talent shortages and supply chain pressures. DeMarco stated, “Assuming the continuing resolution is resolved and there is a funding appropriation in place early next year, we expect Kratos’ third and fourth quarter of 2027 to reflect substantially greater revenue and adjusted EBITDA.”

Key insights from management’s remarks

Management cited surging demand for Kratos’ unmanned systems, propulsion products, and hypersonics programs as key drivers of growth, while also acknowledging ongoing operational challenges related to supply chain and workforce availability.

• Drone production ramp: Kratos is significantly scaling up production of its Valkyrie and Firejet drones, with plans to triple Firejet manufacturing capacity in Oklahoma by the end of 2027, responding to increased domestic and international demand.
• Propulsion system expansion: The company is investing in its Michigan facility to produce up to 3,000 turbojet engines in 2027 for programs like the U.S. Air Force's Family of Affordable Mass Missiles, and is preparing for a second production lot of 5,000 engines for delivery through 2029.
• Hypersonics momentum: Kratos’ hypersonics business secured new contracts, including Nemesis 1, Nemesis 2, and Kraken, contributing to a forecasted $700 million in hypersonic-related revenue for 2027, with additional opportunities being pursued.
• Space business milestones: The OpenSpace software-defined satellite ground system achieved end-to-end connectivity across a multivendor 5G network, positioning Kratos for growth in commercial and national security satellite markets.
• Automation and labor strategy: Management is increasing investment in robotics, additive manufacturing, and 3D printing to address skilled labor shortages, particularly as national security clearance requirements limit the available talent pool.

Drivers of future performance

Kratos’ outlook is shaped by its expanding defense production footprint, ongoing automation investments, and the broader trend of increased global defense spending.

• Production scale-up: Management expects continued growth from rising production volumes in drones, jet engines, and hypersonic systems, underpinned by multi-year programs of record and international partnerships.
• Operational risks and supply chain: Persistent supply chain uncertainties and challenges in recruiting skilled labor—especially those requiring security clearance—remain key headwinds, prompting Kratos to dual-source components and invest in automated manufacturing.
• Program funding and government actions: The company’s growth trajectory relies on timely government appropriations and the resolution of continuing resolutions in Congress; management indicated that further upside could materialize if additional defense funding is approved.

Catalysts in upcoming quarters

In upcoming quarters, the StockStory team will be monitoring (1) the pace at which Kratos ramps drone and engine production to meet new contract awards, (2) the impact of automation and robotics investments on operational efficiency and supply chain resilience, and (3) updates on government funding resolutions that could affect large defense programs and customer demand. Progress on international partnerships and the commercialization of the OpenSpace satellite platform will also be closely watched.

Kratos currently trades at $33.17, in line with $33.32 just before the earnings. Is there an opportunity in the stock? See for yourself in our full research report (it’s free).

Our favorite stocks right now

ALSO WORTH WATCHING: Top 5 Momentum Stocks. The best time to own a great stock is when the market is finally noticing it. These aren’t just high-quality businesses. Something is happening with them right now. Elite fundamentals meet near-term momentum — both boxes checked at the same time.

Find out which stocks our AI platform is flagging this week. See this week’s Strong Momentum stocks — FREE. Get Our Strong Momentum Stocks for Free HERE.

Stocks that have made our list include now familiar names such as Nvidia (+1,460% between June 2020 and June 2025) as well as under-the-radar businesses like the once-small-cap company Exlservice (+271% between June 2020 and June 2025). Find your next big winner with StockStory today.