Kratos Defense & Security Solutions, Inc.'s KTOS shares have lost 37% year to date compared with the Zacks Aerospace-Defense Equipment industry's decline of 4.5%. Kratos Defense is the primary unmanned aerial target drone system provider for the U.S. Air Force, Navy, Army and several allied defense agencies. The company is also expanding in hypersonics, rocket systems, propulsion and microwave electronics.

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Other defense equipment stocks like Teledyne TechnologiesTDY and AeroVironmentAVAV have delivered mixed performance in the said time frame. Shares of Teledyne Technologies have risen 18.7% while those of AeroVironment have lost 39.9%. Teledyne Technologies is benefiting from strong demand in the space market, particularly for infrared detectors, imaging sensors and specialty semiconductors. AeroVironment is benefiting from the growing adoption of unmanned systems by securing major global defense contracts and expanding its portfolio of tactical drones, smart munitions and control software.

Given Kratos Defense's underperformance, investors may be wondering what lies ahead for the stock. Let's examine the key factors and assess its investment prospects to help make an informed decision.

Tailwinds for KTOS Stock

Kratos Defense serves the defense industry with products spanning target drones, rocket systems and SRMs, hypersonic vehicles, jet engines for drones and missiles, and virtualized ground systems for satellites. Management noted that defense funding priorities continue to include areas tied to Kratos programs. In second-quarter 2026, consolidated bookings totaled $492.2 million, implying a 1.1 book-to-bill, while the last 12-month book-to-bill was 1.3.

On Sept. 1, 2026, Kratos Defense secured a $20 million-plus contract from an Asian defense customer to provide mobile satellite communications gateways, highlighting growing demand for resilient communications infrastructure in contested environments. For Kratos Defense, the award provides both near-term revenues and a strategic opportunity to expand its Space and communications business in the Asia-Pacific region.

In August 2026, Kratos Defense received an approximately $35 million award for a national security-related military-grade hardware production program, with the hardware and related systems expected to directly support warfighters in the field. The award reinforces its role as a supplier of mission-critical defense hardware across areas such as hypersonics, counter-drone systems, air defense, missiles, radars and directed-energy systems. The contract provides incremental revenues while validating the company's ability to move advanced defense technologies into large-scale production.

Kratos Defense is expanding production of its Spartan TDI-J85 turbojet engines to support Boeing's Joint Direct Attack Munition Long Range (JDAM LR) program, following the U.S. Air Force's recent $75 million production award to Boeing. The JDAM LR is a long-range precision weapon designed to carry a 500-pound-class payload more than 300 nautical miles, with KTOS' J85 engine providing the propulsion needed to significantly extend the weapon's range. This moves the Spartan engine from development into higher-volume production and gives the company exposure to a potentially scalable weapons program.