What Makes a Defense Company “Best”

“Best” means different things to different investors, but in defense it usually comes down to three things: the size and quality of the backlog, the diversity of the programs, and the profitability of the work. A company with a giant backlog across many programs can weather any single cancellation. A company with one or two big programs is a bigger bet.

The primes sit at the top of this hierarchy. Lockheed Martin, Northrop Grumman, RTX, and L3Harris Technologies each hold tens of billions in booked work across aircraft, missiles, electronics, and space. Below them sit mid-sized specialists like Kratos Defense & Security Solutions (KTOS), which is the defense name in the “Galactic Supply Chain” pitch from The Crow’s Nest.

The Prime Tier: Scale and Backlog

The primes win on scale. They carry multi-decade programs like the F-35 and the Sentinel intercontinental ballistic missile, and their backlogs stretch across many years of revenue. That scale is why they are the traditional “best” defense companies, and why defense investors have defaulted to them for decades.

The tradeoff is growth. A company with a $70 billion revenue base cannot double quickly, because the Pentagon’s budget grows in single-digit percentages. That is exactly the opening a mid-sized specialist like Kratos is trying to fill: more nimble than the primes, still large enough to hold clearances and run real programs.

Kratos: Strong Where It Counts

Kratos has two genuine strengths. The first is hypersonic testing, where it holds MACH-TB, the Multi-Service Advanced Capability Hypersonic Test Bed. That five-year award, worth roughly $1.45 billion and announced in January 2025, is about a full year of current revenue and makes Kratos the Pentagon’s lead on hypersonic flight tests.

The second is its space and satellite division, which posted a 3-to-1 book-to-bill ratio in the first quarter and won a $446.8 million Space Force award for missile-warning ground networks. Book-to-bill above one means the company is signing work faster than it ships it, which is the single best early signal for future defense revenue.

Kratos: Weak Where It Matters

The weaknesses are mostly about price and scale. Kratos trades above 40 times forward earnings, based on roughly $1.12 in expected next-year earnings per share. It was bid to about 400 times earnings last December before correcting, which tells you the market has already priced in a lot of the hypersonic enthusiasm.

It is also still a hardware-heavy mid-cap. Much of its revenue is lumpy government contracting rather than the recurring, high-margin software the pitch emphasizes. The primes, by contrast, combine backlog with far more diversified earnings. For a fuller look at the largest players, our L3Harris explainer and the INI XPanse Harris Technologies piece cover the prime side of the ledger.

Software as the Differentiator

The one area where Kratos stands out from the primes is OpenSpace, its software-defined ground systems platform. Rather than shipping custom hardware to every satellite operator, OpenSpace runs ground networks as software customers subscribe to, which is why the pitch describes it as “the AWS of satellite ground systems.”

That is the part of the Kratos story that genuinely looks like a “best” defense company in the making: recurring subscription revenue with software margins, the kind of business that compounds rather than just contracts. If it grows as the pitch expects, it changes the company’s earnings mix for the better.

How the Pentagon Is Changing

The other force behind Kratos’s argument is the Pentagon’s slow shift toward smaller, faster contractors. For years the primes absorbed most of the budget, but the military has pushed to buy more from mid-sized companies that can move quickly and field software faster than a giant prime’s bureaucracy allows.

Kratos is positioned for that shift. Its OpenSpace platform and its hypersonic test work are exactly the kind of specialized, software-adjacent programs the Pentagon has been funneling to smaller firms. That tailwind is real, even if it does not change the valuation math on its own.

The Honest Read

Kratos earns a spot on the list of best defense companies for a specific reason: it is a real specialist in two areas the Pentagon is spending on, hypersonic testing and satellite ground systems, and it is growing 20% a year. That is a better growth profile than most primes.

But “best” is not the same as “cheap.” Above 40 times forward earnings, the stock already reflects a lot of that promise. The honest read is that Kratos is a strong company you would want to own at the right price, not a guaranteed winner at any price. The distinction matters more than the label.

Ready to see the research? Click here to access Jason Simpkins’s report.

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