Wall Street's favorite defense stock fell 74%. Analysts still say buy

A big “upside” mostly measures how far a stock has already fallen. We pulled every analyst rating on nine US defense stocks: 214 in total, and two thirds of them say buy. The favorites are the drone makers, Kratos and AeroVironment, with average targets 155% and 88% above the price. They are also the two stocks that fell the most, both about 73% below their highs. Lockheed Martin, the stock with the smallest upside, is the only one up strongly this year. Below: why the drone makers fell, what the midterm elections did to the whole sector, whether peace talks in Ukraine played a part, and why the analysts keep saying buy.

214 analyst ratings, nine US defense stocks

141 say buy, 68 hold, 5 sell. The biggest “upside”, +155%, belongs to the stock that fell the most.

Ratings and average 12-month targets from stockanalysis.com; prices at the close of Friday, November 6, 2026.

-74%

Kratos from its January high of $134 to $35.10 on November 6

4 of 4

Firms that cut their Kratos target in eight days and still said buy

-0.89

Correlation across the nine stocks: the further a stock fell, the bigger its “upside”

1. Analysts like drones more than the giants

Source: stockanalysis.com analyst forecast pages, read November 7, 2026.

Twenty-four of the 25 analysts who cover Kratos say buy; it makes the Valkyrie, a cheap jet drone built to fly next to crewed fighters. AeroVironment, maker of the Switchblade attack drone, gets 19 of 24. The old prime contractors, the companies that build the Pentagon’s jets, ships and missiles, are much less popular. Lockheed Martin, the biggest name and the maker of the F-35, is the only one where fewer than half say buy: 11 of 24, with 12 on hold.

The reason is the story analysts are buying. The Pentagon wants thousands of cheap, expendable drones, and the companies that make them can grow much faster than a company already selling $75 billion a year. That story did not change in 2026. The price did.

2. The “upside” is mostly the fall

Sources: average targets from stockanalysis.com (read Nov 7, 2026); prices and 52-week highs (daily highs, Nov 7, 2025 – Nov 6, 2026) from Yahoo Finance.

Upside is the gap between the average analyst target and today’s price. Plot it against how far each stock is below its 52-week high, and the nine dots almost line up: the correlation is −0.89. Kratos and AeroVironment sit top right, both more than 70% below their highs. Lockheed Martin, RTX and General Dynamics sit bottom left, 12–18% below theirs. Lockheed is up 17% since the start of 2026; Kratos is down 54% and AeroVironment 53%.

This is not a coincidence. Targets are set for 12 months ahead and move slowly; prices move every second. When a stock falls 70% in ten months and the targets fall less, the gap between them, the “upside”, grows by itself. A large upside can mean analysts see something the market misses. More often, it means the price fell faster than they rewrote their numbers.

3. Why Kratos fell

Sources: daily closes from Yahoo Finance (unadjusted); target cuts from stockanalysis.com and MarketBeat.

Kratos peaked at $134 on January 20, 2026. Three things took it to $35.10:

• It was priced for perfection. At the January peak the stock traded at more than 15 times its annual sales, rare for a hardware maker; by September it was about 6 times. By the autumn its forward price-to-earnings ratio had fallen from 183 to 43. Nothing broke in the business for this part; investors just stopped paying 2030 prices in 2026.
• It sold new shares. On February 26 Kratos filed to raise about $1 billion for new drone and hypersonic factories. New shares dilute old ones: each existing share owns a smaller part of the company. The stock fell 6.5% the next day.
• Growth costs cash. Third-quarter sales, reported on November 5, rose 35.7% to $471.8 million. But the company made an operating loss of $4.9 million and spent $35 million more than it took in from operations (operating cash flow minus investment). For the whole of 2026 it expects to use $110–120 million of free cash flow, and says heavy investment in factories and inventory will continue “at least throughout” 2027. The stock fell 7.1% that day, after 12.3% the day before, when the whole sector sold off (section 4).

AeroVironment fell for a different reason: it lost work. On January 20, 2026 the US Space Force issued a stop-work order on its SCAR satellite-ground-station program, and the stock fell 15.8%. The contract was later terminated and AeroVironment had to compete for it again; it booked a $151.3 million goodwill write-down in its space business, and the stock fell another 17.4% on March 2. A shareholder class action followed; its claims are allegations, not findings.

4. The week Washington changed

Source: daily closes from Yahoo Finance (unadjusted). S&P 500 = SPY, US aerospace & defense = ITA, both ETFs.

The whole sector’s worst day of the season came on November 4, the day after the midterm elections, when Democrats had won both the House and the Senate. President Trump had asked for $1.5 trillion of military spending for fiscal 2027, against $901 billion approved today. A Democratic Congress makes that number look unreachable; the Pentagon itself is reported to be trimming its request to about $1.1 trillion, and no budget has been decided.

On a day when the S&P 500 rose 1.7%, Lockheed Martin fell 6.9%, its worst session since July 22, 2025. L3Harris lost 6.5% and Northrop Grumman 4.5%. RTX fell only 2.6%: about half of its business is civilian (jet engines and parts for airlines), so the Pentagon budget matters less to it. The drone makers fell the most, Kratos 12.3% and AeroVironment 8.3%: a stock priced on future Pentagon orders is the most exposed to a smaller Pentagon.

5. Did peace in Ukraine do it?

No, at least not yet, because the war has not ended. The United States will host new Russia–Ukraine talks in Abu Dhabi on November 10–11. Analysts expect little: Russia still demands all of the Donbas region, including land it does not hold, and Kyiv refuses. The only ceasefire agreed in late October covers one town, Oleshky; Russian strikes on the rest of Ukraine continued.

Peace headlines do move defense stocks, but mostly European ones. Rheinmetall, Germany’s biggest arms maker, fell about 4% around the Trump–Putin summit in August 2025 and almost 5% on peace-plan news in November 2025. European companies are selling directly into Europe’s rearmament, which a peace deal could slow. US contractors live on the Pentagon budget, and in our data their big move came from Washington, not from the negotiations. If a real peace deal comes, it will be a new test; it is not what happened this week.

6. Why analysts still say buy

The four firms that cut their Kratos targets between October 30 and November 6, B. Riley, KeyBanc, Baird and BTIG, cut them by 29% to 42%. All four kept a buy rating. Three reasons:

• They cut what investors pay, not what Kratos earns. KeyBanc said its own profit estimates were largely unchanged; the target fell because the whole sector now trades at lower multiples. Kratos itself guides to $2.1–2.2 billion of revenue in 2027, about 20% more than in 2026.
• The story is long. The bet is on drone programs that pay off in 2028 and later, not on next quarter’s cash flow. After a 74% fall, even a much lower target is still far above the price.
• “Sell” is rare. Only 5 of the 214 ratings say sell. Banks rarely tell clients to sell a company they cover, so the signal is in the target cuts, not in the rating. Four cuts in eight days, made when the price was already about 70% below its high, are the targets catching up with the market.

And why RTX is the calm one. Even its most pessimistic analyst sees the stock 5.5% higher; among the six old contractors, it is the only one whose lowest target is above the price. Its order book hit a record $340 billion in the third quarter, including multiyear missile contracts for Tomahawk and AMRAAM, and its CEO talks of “almost a decade” of demand. Half of the business sells to airlines, which a defense budget fight does not touch.

My reading: the analysts are not wrong about drones, but their “upside” is a lagging number. When you see +155%, first check how far the price has already fallen. Here it was 74%, and the targets were still being cut while the stock was at its lows.

Ratings and 12-month targets: stockanalysis.com, read November 7, 2026. Prices: close on November 6, 2026; 52-week high is the highest daily high since November 7, 2025 (Yahoo Finance). Upside = average target ÷ price − 1.

Kratos KTOS

At publication

$35.10

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AeroVironment AVAV

At publication

$112.76

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RTX

At publication

$189.53

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Lockheed Martin LMT

At publication

$567.08

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Source: Yahoo Finance daily closes. Live data refreshes on page load.

The prices above are frozen at the last close before this post (November 6, 2026) and update live every time the page opens.

What the numbers leave out

• Nine stocks are a small sample. The −0.89 correlation shows how upside and the fall moved together here; it is not a law, and two drone makers drive much of it.
• Analysts are not equal. A rating from a firm that covers a stock closely counts the same as one that rarely updates. Stockanalysis.com’s counts also include ratings of different ages.
• “Buy” merges labels. Firms say Buy, Overweight or Outperform; we count all of them, and Strong Buy, as buy.
• The 52-week high is an intraday high, so the “from high” figures are slightly larger than they would be using closing prices.
• Share moves have many causes. The November 4 fall followed the election result and the reports on a smaller budget request; the chart does not prove which one moved each stock.
• Ukraine: we found no sign in this data that peace talks moved US defense stocks, but we did not test it formally, and the talks on November 10–11 could change that.

Data

Download the datasets: ratings.csv (ratings, targets, upside, 52-week high), election_day.csv, kratos_price.csv and kratos_target_cuts.csv.

Methodology

• Ratings and targets: the analyst forecast pages on stockanalysis.com for LMT, RTX, NOC, GD, LHX, HII, KTOS, AVAV and PLTR, read on November 7, 2026. Buy = Strong Buy + Buy, Sell = Sell + Strong Sell. Upside = average 12-month target ÷ the November 6 close − 1.
• Kratos target cuts: B. Riley ($128 → $91, Oct 30), KeyBanc ($130 → $75, Nov 2), Baird ($110 → $75, Nov 6), BTIG ($104 → $65, Nov 6), from stockanalysis.com and MarketBeat. KeyBanc’s unchanged estimates, the valuation multiples and the February share sale from TIKR.
• Kratos third quarter: revenue, operating loss, cash flow, capital spending, 2026 free cash flow guidance and 2027 revenue guidance from the company’s earnings release (8-K, SEC). Our cash figure is operating cash flow (−$5.2 million) minus capital spending ($30.2 million); the company’s own definition, which adds asset sales and state grants, gives −$29.4 million.
• AeroVironment: the stop-work order, the moves on January 20, March 2 and March 11, 2026, the $151.3 million goodwill impairment and the SCAR termination from the class-action filings as reported by Newsfile, which quote the company’s results.
• Midterms and the budget: the $1.5 trillion request, the $901 billion approved level, the $1.1 trillion reports and Lockheed’s worst session since July 22, 2025 from 24/7 Wall St. and The Motley Fool. The day moves in the chart are our own, from Yahoo Finance closes.
• Lockheed Martin: the October 2026 F-35 framework and Morgan Stanley’s upgrade from CNBC.
• RTX: third-quarter sales, backlog and missile contracts from the company’s earnings release (8-K, SEC); the CEO’s “almost a decade of demand visibility” via Stocktwits.
• Ukraine: the Abu Dhabi talks from CNBC and RFE/RL; the Oleshky ceasefire from The Moscow Times; Rheinmetall’s moves from XTB (August 2025) and AIN (November 2025).
• Prices: daily open, high, low and close from Yahoo Finance via yfinance, unadjusted, October 1, 2025 to November 6, 2026, the last close before publication; live prices come from Yahoo Finance when the page loads.
• Code: plain Python scripts (collect.py, analyze.py, snapshot_stocks.py).
• Trademarks: company and product names are trademarks of their respective owners. This site is independent and not affiliated with or sponsored by Kratos, AeroVironment, RTX, Lockheed Martin, Northrop Grumman, General Dynamics, L3Harris, Huntington Ingalls, Palantir or any other company mentioned. This study was produced with Claude, a model made by Anthropic.