Drone maker Kratos surges after S&P 600 inclusion

Shares of Kratos Defense & Security Solutions, a small-cap manufacturer of drones, munitions, and military electronics, surged nearly 6% yesterday, March 24, after the stock joined the S&P SmallCap 600 index. Inclusion in the index typically attracts new long-term investors, Nasdaq finds.

Kratos gained nearly 6% on the Nasdaq yesterday to close at $32.53 per share. In early trading today, March 25, the stock added another 1.2%.

Investors were encouraged by the company’s addition to the S&P SmallCap 600. Like the Russell 2000, the index tracks small- and mid-cap stocks, but with a key difference: To qualify for the S&P 600, a company must be profitable for four consecutive quarters.

Recall that S&P Dow Jones Indices announced its quarterly rebalancing, including for the flagship S&P 500, on March 7. Kratos was among the names added to the S&P SmallCap 600. As of yesterday,  its shares are officially part of the index.

Research by Nasdaq indicates that joining a major index generally boosts liquidity and trading volumes by drawing in long-term institutional investors.

Kratos develops solutions and products for the defense industry. Its portfolio includes drones, loitering munitions (kamikaze drones), satellite communications systems, and Earth observation solutions. Its clients include the U.S. Navy, for which it supplies subsonic drones such as the BQM-177A.

In 2024, the company grew revenue nearly 10% to $1.14 billion. Net income surged sevenfold to $16.3 million, or $0.11 per share.

For 2025, Kratos forecasts revenue growth of 10-13% to $1.26-1.28 billion. The company is upbeat because of expected increased defense spending under the Trump administration.

“The Trump administration has increased emphasis on reducing cost, rapidly fielding new technology and systems and getting more for less… At Kratos…‘Better is the Enemy of Good Enough Ready to Field Today,’” President and CEO Eric DeMarco was quoted as saying in the company’s latest earnings report.

Kratos shares are up more than 23% year to date and have gained nearly 86% over the last 12 months.

According to MarketWatch, 13 Wall Street analysts cover the stock. Nine rate it a “buy,” while four have it as a “hold.” Their average target price of $34.25 per share implies 5% upside versus the last closing price.