Kratos Defense Q2 Earnings on the Horizon: Buy or Sell Ahead of Results?

Core Viewpoint - Kratos Defense & Security Solutions, Inc. (KTOS) is expected to report second-quarter 2025 results on August 7, 2025, with projected revenues of $306.8 million, reflecting a 2.2% increase year-over-year, while earnings per share are anticipated to decline by 35.7% to nine cents [1][2][5]. Revenue Projections - The Zacks Consensus Estimate for KTOS' second-quarter revenues is $306.8 million, indicating a 2.2% rise from the previous year [2][5]. - The Unmanned Systems segment is projected to generate revenues of $79.1 million, representing a 7.8% decline from the prior year due to supply chain disruptions [6]. - The Government Solutions segment is expected to report revenues of $228.7 million, which is a 6.7% increase from the year-ago quarter, driven by growth in C5ISR, Defense Rocket Support, and other product lines [7][8]. Earnings Outlook - The company has a strong earnings surprise history, having outperformed the Zacks Consensus Estimate in the last four quarters with an average surprise of 47.57% [3]. - KTOS has an Earnings ESP of +5.56% and a Zacks Rank of 3, indicating a favorable outlook for an earnings beat this quarter [4][16]. - Despite positive revenue projections, earnings may be pressured by downtime at the Microwave Products facility in Israel and rising costs associated with subcontractors [9][16]. Stock Performance and Valuation - KTOS shares have increased by 193.8% over the past year, significantly outperforming the Zacks aerospace-defense Equipment industry's growth of 58.1% [10]. - The current forward 12-month price/sales multiple for KTOS is 6.50X, which is lower than the industry average of 10.51X, but higher than its five-year median of 2.68X, suggesting a stretched valuation [12]. Industry Context - Rising global tensions have led to increased defense spending, benefiting companies like Kratos Defense through strong contract wins [14]. - The company’s return-on-equity (ROE) stands at 5.67%, lower than the industry average of 8.29%, indicating less efficiency in generating profits compared to peers [15].