Kratos Defense & Security Solutions enters post-earnings trade with a story that should be straightforward — a Q1 beat and a full-year guidance raise — yet the stock is down 12% over the past month and lost another 4.2% on Tuesday. The gap between a strengthening fundamental picture and a retreating share price is the tension worth unpacking this week.
The Q1 print, released after the close on May 6, was unambiguously strong. Adjusted EPS of $0.16 beat the $0.13 consensus. Revenue of $371 million cleared the $339.8 million estimate by a wide margin. Management raised full-year 2026 sales guidance from a $1.595–1.675 billion range to $1.700–1.760 billion, well above the prior Street consensus of $1.671 billion. Q2 guidance of $400–410 million bracketed the $409 million estimate. By any standard measure, this was a clean beat-and-raise quarter.
The positioning picture is notably relaxed heading into that catalyst. Short interest has drifted lower — down roughly 2% on the week and 4% over the past month — to 5.7% of the free float, or around 9.6 million shares. That is a meaningful decline from mid-April levels near 11 million shares, when shorts were building into what proved to be a top near $76. Borrowing conditions are extremely loose: cost to borrow has collapsed 73% over the past week to just 0.13%, a fraction of its late-April range of 0.38–0.48%. Availability remains ample. The ORTEX short score of 41, in the 29th percentile of the universe, confirms there is nothing aggressive in the short book right now. Options traders are equally relaxed — the put/call ratio of 0.63 is fractionally below its 20-day average of 0.64, essentially neutral, with no meaningful skew toward protection ahead of earnings.
The analyst community is broadly bullish, but targets were set when the stock was trading much closer to $75–$80. Jefferies upgraded to Buy in early April with an $85 target; Goldman Sachs maintained Buy with a $125 target back in January; Keybanc, Canaccord, and BTIG are all Buy-rated with targets ranging from $115 to $130. UBS and Piper Sandler sit on the sidelines, both neutral. The mean analyst target of $116.75 implies roughly 97% upside from Tuesday's close of $59.31 — a gap that reflects either a dramatic valuation reset since those targets were filed, or simply that the Street has not yet revised numbers post-print. The EV/EBITDA multiple has compressed to 51x from above 55x a month ago, and the P/E has fallen from near 87x to 67x over the same period. Factor scores on EPS momentum are strong — 78th percentile on 30-day momentum and 95th percentile on 12-month forward earnings-year-on-year growth — which frames the valuation compression as a price move, not a deterioration in the underlying earnings trajectory.
Insider activity adds a note of caution. The CFO sold 5,000 shares in two tranches on May 1, just days before earnings; a divisional president trimmed 4,000 shares on April 28; and another divisional head sold 7,000 shares on April 27. A director also sold over 5,400 shares at $75.90 in mid-April. Taken together, net insider activity over the 90-day window nets out to modest buying in share terms but at values that imply the bulk of those transactions were executed at prices well above current levels. None of the sell tickets are enormous in dollar terms — the largest single trade was the April 27 divisional president sale at roughly $431,000 — but the cluster of pre-earnings selling by management across multiple roles is worth noting as context.
Peer behavior this week reinforced that the defense sector broadly sold off. Close correlate AVAV dropped 7.5% on the day and 13.3% on the week — a sharper decline than Kratos. KRMN fell 3.7% on the day and 10.5% on the week. HII was among the hardest hit, dropping 10.2% on Tuesday. The one outlier was MRCY, which gained 5.6% on the day and 8.4% on the week — suggesting company-specific dynamics rather than a sector bid can move individual names sharply even in a down tape. The next scheduled event for Kratos is May 12, though that date may now shift given the May 6 print already released; the earnings call detail and analyst revisions post-release will be the primary data points to track.
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