Title
Earning Preview: Kratos Defense & Security Solutions Q4 revenue is expected to increase by 14.27%, and institutional views are bullish
Abstract
Kratos Defense & Security Solutions will report results on February 23, 2026 Post Market; investors are watching for revenue and EPS growth versus last year as recent contract wins and autonomy milestones set the tone for margin and mix in the new fiscal year.
Market Forecast
Market expectations for the current quarter point to revenue of $327.87 million, up 14.27% year over year, and adjusted EPS of $0.16, up 56.59% year over year; EBIT is projected at $10.16 million, a 43.61% year-over-year increase. No formal outlook for gross profit margin or net profit margin is available for the quarter, though prior-quarter metrics provide a baseline reference.
Kratos’ main business is anchored by its systems and solutions revenue stream, which is expected to remain supported by recent training-systems and satellite-ground contracts, helping backlog conversion and near-term visibility. The company’s most promising segment remains Unmanned Systems, which delivered $87.20 million last quarter and is positioned to benefit from recent tactical-autonomy milestones; year-over-year growth by segment was not disclosed in the available dataset.
Last Quarter Review
In the previous quarter, Kratos Defense & Security Solutions reported revenue of $347.60 million (up 25.99% year over year), a gross profit margin of 22.18%, GAAP net profit attributable to shareholders of $8.70 million, a net profit margin of 2.50%, and adjusted EPS of $0.14 (up 27.27% year over year).
A key financial highlight was revenue outpacing internal projections by $25.32 million, with EBIT of $7.10 million exceeding the prior estimate; GAAP net profit rose sequentially by 200% on a quarter-over-quarter basis. On the business side, Kratos Government Solutions contributed $260.40 million (74.91%) and Unmanned Systems $87.20 million (25.09%); segment-level year-over-year growth was not disclosed in the available data.
Current Quarter Outlook (with major analytical insights)
Core Business Trajectory: Kratos Government Solutions
Kratos Government Solutions is the company’s revenue backbone and the largest contributor to quarterly sales, accounting for $260.40 million last quarter. The incoming quarter’s $327.87 million revenue projection, if achieved, will rely substantially on this segment’s conversion of awarded work into shipments and milestones. Recent wins in training and simulation, totaling about $65.00 million, point to sustained demand across logistics and rotary-wing platforms and support the near-term revenue bridge. While the company did not provide a gross margin outlook for the quarter, the mix effect within Government Solutions—where complex software and training content can be margin accretive—will be important for profitability given last quarter’s 22.18% gross margin baseline.
From a timing perspective, Government Solutions often absorbs swings in delivery schedules as large programs move through design, integration, and acceptance phases. This dynamic can add variability to quarterly margins, even when revenue trends remain favorable. In the current setup, the EBIT forecast of $10.16 million implies incremental operating leverage, but much depends on the mix of higher-value training and satellite-ground software versus hardware-heavy deliverables. If the training and satellite-ground contributions skew higher, gross margin may stabilize or improve; if hardware and pass-through content are heavier this period, margin could track near the recent 22% level.
Cash conversion and milestone timing are also relevant. Contracts with milestone payments can bolster operating cash flow if acceptance events cluster late in the quarter, enhancing leverage on fixed costs. Conversely, slippage of acceptance milestones may defer recognition into the next period. Investors should expect the cadence of completions to be a principal driver of both EBIT and margin variability around the quarterly midpoint of expectations. This sensitivity does not change the revenue outlook for the program lifecycle but can influence near-term earnings cadence.
Growth Engine: Unmanned Systems and Tactical Autonomy
Unmanned Systems delivered $87.20 million last quarter and remains the company’s clearest growth engine entering the current period. Selection to a Department of Defense “Drone Dominance” Phase 1 Gauntlet validates the tactical autonomy roadmap and brings competitive visibility to platforms capable of multiple one-way missions, which are increasingly central to emerging concepts of operations. While revenue recognition from competitions may be back-half or multi-period in nature, near-term engineering, integration, and test activity can support incremental revenue and set up larger prototype or low-rate initial production awards.
Kratos’ continued progress in automated vehicle platooning initiatives, including an expansion to a major motorsports season logistics fleet, showcases real-world autonomy performance. While not a core defense revenue stream, successful, repeated autonomous operations broaden the company’s proof points and can translate into additional autonomy software and control-system opportunities. This optionality complements the tactical drone portfolio and can support blended margins, particularly as software content scales relative to hardware.
For the current quarter, mix within Unmanned Systems will remain the principal swing factor for EPS versus the $0.16 estimate. Programs in early integration phases can be dilutive to segment margin, while maturing systems with repeat shipments and software upgrades tend to be margin accretive. Given the company’s participation in new competitive venues and ongoing test schedules, investors should anticipate some intra-quarter lumpiness. A constructive scenario features steady engineering services coupled with incremental prototype milestones; a less constructive scenario would see test re-phasing shift recognition into subsequent quarters. Either path still aligns with the revenue forecast’s year-over-year growth, though EPS sensitivity will track mix and timing.
Key Stock Price Drivers This Quarter
The most prominent driver of the stock this quarter is whether the company meets or exceeds the $327.87 million revenue and $0.16 EPS benchmarks, given these imply year-over-year growth of 14.27% and 56.59% respectively. Delivery and acceptance timing across Government Solutions and Unmanned Systems will likely determine whether EBIT achieves the $10.16 million projection and whether gross margin trends remain near last quarter’s 22.18%. If the quarter shows evidence of improving margin mix within Government Solutions, sentiment could improve around the sustainability of double-digit EPS growth beyond the quarter.
Program milestones within Unmanned Systems are a close second driver. Demonstrable progress in tactical autonomy—especially in competitions tied to potential prototype awards—supports a path to larger production contracts. Even if revenue impact this quarter is modest, clear program advancement can cause investors to raise out-year growth expectations and potentially ascribe a higher value to the segment’s pipeline. Conversely, any material test delays or rescheduling could reinforce concerns about near-term margin volatility despite a healthy demand outlook.
Order momentum and visibility from new awards will also influence the share price reaction. The recently secured $65.00 million in training-system contracts reinforce backlog conversion prospects. An announcement cadence that underscores continued wins, even if revenue contribution is phased over multiple quarters, supports the revenue growth narrative. In the absence of formal margin guidance, investors will read through these awards for implications on future gross margin, given the different profitability profiles across software, systems, and hardware.
Analyst Opinions
The balance of recent institutional commentary is bullish, with a 2-to-0 split of bullish versus bearish views and one neutral stance over the January to mid-February window. Notably, Stifel Nicolaus reiterated a Buy rating with a $134.00 price target, pointing to continued execution and a favorable path for earnings expansion as programs scale. B. Riley also maintained a Buy rating while raising its price target to $128.00, citing strengthening visibility in both solutions and unmanned portfolios and a constructive transition from engineering-heavy phases toward repeatable deliveries. Piper Sandler initiated coverage at Neutral with a $99.00 target, providing a more measured view that recognizes growth potential while highlighting valuation discipline and the need for continued proof points.
The bullish side emphasizes the leverage in the model as mix improves and backlog converts. The projected $0.16 EPS, up 56.59% year over year, alongside the $10.16 million EBIT forecast, is seen as achievable if delivery schedules hold and autonomy programs maintain their momentum through competitions and demonstrations. From this perspective, last quarter’s 25.99% revenue growth to $347.60 million and segment split—$260.40 million from solutions and $87.20 million from unmanned platforms—indicate that the revenue base is broad enough to support continued investment in autonomy while still generating incremental operating leverage.
Analysts also point to the cadence of announced awards as a confidence marker. Training and simulation awards of about $65.00 million signal persistent demand for high-fidelity mission readiness solutions, while repeatable autonomy demonstrations expand addressable opportunities for control software and systems integration. Bulls argue that the absence of formal margin guidance is typical for a company with multiple programs at different lifecycle phases, and that last quarter’s 22.18% gross margin provides a realistic baseline that could improve with a stronger software and systems mix. They also reference the sequential rebound in GAAP profitability—quarter-on-quarter net profit rising by 200%—as evidence of operational traction when deliveries align with milestones.
The majority view anticipates that even modest upside to the $327.87 million revenue forecast could yield disproportionate EPS benefits if the quarter’s mix favors software and training deliverables within Government Solutions and steady engineering progress within Unmanned Systems. As a result, price targets in the low to mid-triple digits reflect confidence that tactical-autonomy vectors and continued award flow can sustain revenue growth while moving the earnings profile higher. In the immediate term, execution against delivery schedules, clarity on milestone timing, and signals of margin mix remain the primary elements that could validate the bullish outlook.Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
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