UBS opened coverage on Kratos Defense & Security Solutions (NASDAQ: KTOS) with a Neutral rating and established a $79.00 price target, citing a mix of robust growth projections and elevated valuation metrics.
In its initiation note, UBS analyst Gavin Parsons outlined a scenario in which Kratos’ top line and adjusted EBITDA expand meaningfully through the end of the decade. The firm’s model anticipates revenue rising roughly 2X and EBITDA growing approximately 3X by 2030 under its assumptions.
Despite those growth trajectories, UBS expressed caution about current price levels. The bank observes that Kratos has re-rated to roughly 86X next-twelve-months EV/EBITDA - a fivefold increase from its historical multiple - and now trades about 3X higher than its historical premium to major defense prime contractors. UBS further noted that Kratos currently carries a higher valuation than Palantir Technologies.
On consensus and internal estimates, UBS’s 2027 EBITDA projection sits about 9% below the market consensus. Using its valuation framework, the firm calculated that Kratos would need to expand EBITDA by roughly 6X by 2030 to reach a valuation consistent with its historical premium to prime defense contractors. To align with the average consensus price target of $125, UBS determined EBITDA would need to increase by about 9X over the same period.
UBS also pointed to the evolving dynamics within the defense sector as a potential constraint on Kratos' rerating. The bank noted that prime defense contractors, having made significant capital expenditures, are also positioned to accelerate growth, providing investors with alternative ways to capture defense-sector expansion at comparatively lower valuations.
Operational and contract developments
Alongside the valuation discussion, the note outlined recent commercial and program activity for Kratos. The company was awarded a contract by Airbus Defence and Space to supply the ground segment for OmanSat-1, Oman’s first national satellite, in support of Space Communication Technologies in collaboration with Airbus.
Kratos has also been selected to take part in the initial phase of the Pentagon’s Drone Dominance program, a competition designed to evaluate platforms capable of one-way attack missions. According to the announcement, participants will be ranked and may receive prototype delivery awards based on their performance in the evaluation phase.
In the logistics and mobility space, Kratos will continue providing automated truck platooning technology to support NASCAR logistics operations for the 2026 season, including the debut of newly branded trailers during the Daytona 500 race weekend.
Separately, Kratos opened a new 55,000-square-foot manufacturing and payload integration facility in Princess Anne, Maryland. The site will support hypersonic testing activities for the Multi-Service Advanced Capability Hypersonics Test Bed 2.0 program and work for other clients, including the U.S. Navy, U.S. Air Force, DARPA, and the Missile Defense Agency.
UBS’s initiation frames a tension between material projected growth and current market pricing. The bank’s analysis indicates that, while Kratos is pursuing multiple adjacent markets with contract awards and facility expansion, investors face a valuation hurdle that would require very large EBITDA increases to justify higher price targets.