Why Kratos Defense and Security Stock Absolutely Crushed the Market Today

Defense stocks aren't supposed to move like tech rockets—but someone forgot to tell Kratos.

The Unlikely Market Darling

While traditional investors chase yield in all the usual places, Kratos Defense just pulled off a maneuver that left Wall Street analysts scrambling. The security-focused defense contractor delivered performance that would make most FAANG stocks blush.

Behind the Surge

Defense sector momentum combined with specific contract wins created the perfect storm. The numbers don't lie—today's action proves that sometimes the biggest opportunities hide in the most unexpected sectors. Meanwhile, hedge funds are probably still trying to figure out how they missed this one while over-analyzing consumer tech.

In a market obsessed with AI and cloud everything, today's action serves as a refreshing reminder: sometimes the smartest plays are the ones everyone's too sophisticated to notice. But don't worry—the big banks will have a complicated explanation ready by morning.

A nearly 40% increase brought bulls into the stock

The raiser was RBC Capital's Ken Herbert, who decided to enhance his fair value assessment on Kratos by 38%. His new level for the drone Maker is $90 per share, well up from his preceding price tag of $65. With the change, he understandably maintained his outperform (read: buy) recommendation on the stock.

Image source: Getty Images.

The reasoning behind Herbert's MOVE wasn't immediately clear. However, it doesn't seem coincidental that it came just after the defense company delivered several pieces of good news about its business.

Most notably, on Tuesday, Kratos announced that it had entered into a five-year strategic manufacturing arrangement with a privately held, next-generation aircraft maker called Elroy Air. That company develops self-piloting aircraft specializing in military logistics. Under the terms of the deal, Kratos will be the exclusive manufacturing partner of Elroy's Chaparral cargo drone.

Up, up, and away

The same day, busy Kratos also announced that it and large peerhave launched altitude testing on a state-of-the-art drone engine they've been developing. That engine, the GEK800, is, in Kratos's words, "designed to power the next generation of affordable unmanned aerial systems and CCA-type aircraft."

"CCA" stands for collaborative combat aircraft, a class of "wingman" uncrewed craft being developed by the U.S. military to accompany fighter jets on combat missions.