Palantir has become a big name in tech. Its AI analytics have attracted a huge client base that includes major enterprises and the U.S. government.
However, its high valuation and recent stock drops have prompted investors to search for the next Palantir-like opportunity in the defense and AI space.
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Wall Street veteran Stephen “Sarge” Guilfoyle had successfully predicted the defense star Palantir’s growth as early as May 2024. Now, he has another defense stock pick for 2025.
Guilfoyle’s career stretches back to the 1980s on the NYSE floor. His investment style is best described as hybrid. He blends economic, fundamental and technical analysis to determine which stocks are worthy of his hard-earned investment capital.
The Kratos Defense Valkyrie unmanned aerial system. Kratos focuses on military tech, including tactical drones.
Kratos Defense
The prominent writer for TheStreet Pro has a strong take on Kratos Defense (KTOS) stock.
In Greek mythology, Kratos personifies strength and power. Like the name, Kratos Defense focuses on developing innovative technologies for U.S. military and government applications.
The company specializes in unmanned aerial systems, advanced defense technologies, and high-performance satellite communications.
It has integrated artificial intelligence into its systems, enabling drones to operate autonomously and adapt in real-time to changing mission parameters.
Kratos was one of the early successes in TheStreet Pro’s “Stocks Under $10” portfolio, which Guilfoyle and Chris Versace managed. They exited the position at roughly $17, after which the stock traded lower for a while.
Increasing competition in unmanned aerial systems, or drone, technology pushed the stock off the radar for a time, but now it’s time to take another look, Guilfoyle says.
“We never really gave KTOS another solid thought as the ‘drone’ space became more crowded and the firm’s business at times had struggled,” Guilfoyle wrote. “That’s unfortunate. Why? Because KTOS has been in an uptrend since late 2022,”
Kratos nearly doubled (up 96.6%) in 2023 and surged 30% in 2024. Thirteen days into 2025, the stock is already up 16%.
Kratos surges on Pentagon contract
Kratos’s recent stock rally was driven primarily by a major deal with the Pentagon.
On Jan. 6 Kratos announced a five-year contract to develop an initiative to increase the Pentagon’s capacity for hypersonic flight tests and speed the technology to warplanes.
If all options are exercised over the contract’s life, the total value of the award would be $1.45 billion.
“The Mach-TB 2.0 program award is an important element of Kratos’s future year organic growth forecast and expectation,” Kratos Chief Executive Eric DeMarco said in a statement.
In the week since the company disclosed the contract, it has received two more accords valued at a total $148 million.
Related: Analysts reveal AI stock picks for 2025, including Palantir
Kratos closed at $29.37 on Jan. 10, and Guilfoyle thinks it could edge higher after he reviewed the company’s recent awards and financials.
“Should the [Kratos] stock find support at the upper trendline of the model ($28), that becomes my pivot and would allow for a target price as high as $35,” Guilfoyle wrote.
Kratos Defense: Earnings and analyst reports
Kratos reported its third-quarter financial results in early November. The company earned an adjusted 11 cents a share, off 8.3% from 12 cents in the year-earlier period. Revenue ticked up 0.5% to $275.9 million from $274.6 million.
The company is expected to report for the fourth quarter in mid-February. Currently, Wall Street is looking for adjusted EPS of 10 cents on revenue of $287.6 million.
As of the end of the September quarter, Kratos held $301.5 million of cash and had unearned revenue of $61.9 million. Inventories were valued at $158.9 million. Current assets totaled $838.4 million, more than three times current liabilities of $260.5 million.
“At the headline level, that puts the firm’s current and quick ratios at 3.22 and 2.61, which is very healthy, ” Guilfoyle wrote. These multiples are key metrics used to evaluate a company’s liquidity and ability to meet short-term obligations. Both ratios are far above the baseline of 1.
Related: Analysts sound alarms on Palantir stock into 2025
Raymond James said Kratos’s contract for the hypersonic test bed would likely become the San Diego group’s fastest-growing program in 2025 and 2026, likely leading to positive adjustments.
The firm has a strong buy rating on Kratos shares, thefly.com reported on Jan. 6.
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Meanwhile, Jefferies lowered its Kratos stock price target to $29 from $30 with a hold rating.
The Defense and IT services revenue outlook “appears balanced and lacks positive catalysts,” the analyst said in a 2025 outlook note for the Aerospace and Defense Electronics group.
Related: Veteran fund manager delivers alarming S&P 500 forecast
