Three US Defence Stocks With Firepower for Growth

America is not just rearming. It is rebuilding, restocking and rethinking what modern warfare requires. Drones, missiles, hypersonics, counter-drone systems and electronic warfare are moving higher up the military shopping list. For investors chasing growth rather than another dependable defence dividend, three US-listed companies stand out over the next 12 months: Kratos Defense (KTOS), AeroVironment (AVAV) and L3Harris Technologies (LHX). They carry very different risks, but all three are positioned where the Pentagon's priorities, procurement and plenty of money are heading.

Kratos is the most aggressive growth bet of the three. The company operates across unmanned aircraft, rocket systems, hypersonics, turbine engines, microwave electronics and other defence technologies. Better still, the growth is no longer confined to a glossy investor presentation. Second-quarter 2026 revenue surged 30.5 per cent to US$458.8 million, including 19.1 per cent organic growth. Government Solutions grew organically by 22 per cent, while adjusted earnings per share jumped from US$0.11 to US$0.21.

Management has lifted its 2026 revenue forecast to US$1.75 billion to US$1.81 billion, with expected organic growth of roughly 18 to 23 per cent. Kratos also finished June with US$2.084 billion in backlog and a hefty US$15 billion bid and proposal pipeline. Its trailing 12-month book-to-bill ratio was 1.3, meaning new bookings were arriving faster than revenue was being recognised. That combination of backlog, bids and battlefield technology makes KTOS particularly interesting.

Kratos is also small enough that a major drone, propulsion, missile or hypersonic programme can materially move the earnings needle. Of course, small and speedy works both ways. Rapid growth requires rapid investment, expectations are already high, and one delayed contract or disappointing quarter can give an expensive growth stock a very cheap-looking afternoon. KTOS has the biggest potential punch, but it packs plenty of volatility with it.

AeroVironment may be the most intriguing technology bet of the three. AV is best known for Switchblade loitering munitions and unmanned aircraft, but its combination with BlueHalo dramatically broadened the business into counter-UAS, electronic warfare, cyber, space and directed energy. Fiscal 2026 revenue reached US$1.977 billion, up 141 per cent overall. Before anyone starts ordering champagne, acquisitions drove much of that headline increase. More importantly, AeroVironment still managed a very healthy 26 per cent organic revenue growth, while funded backlog stood at US$1.2 billion.

Then came a particularly juicy contract. On 2 September 2026, the US Army awarded AeroVironment a US$464.8 million contract for its LOCUST high-energy laser systems under the Enduring-High Energy Laser programme. According to the company, it is the first US production contract for directed-energy systems, marking another move from laboratory lasers towards production weapons. Just a week earlier, the Army placed another US$51 million order for Switchblade 600 loitering munitions.

That creates an unusually compelling combination. AeroVironment sells drones and precision-strike systems, but it also sells technology designed to detect and destroy enemy drones. AV increasingly sells both the threat and the treatment. Cheap drones have become an expensive headache for modern militaries, so finding cheaper and more plentiful ways to swat them out of the sky has obvious appeal. The risk is execution. AeroVironment has grown dramatically through acquisition and now has to prove it can turn that larger portfolio into sustainable profits and cash flow. Its next test comes quickly, with first-quarter fiscal 2027 results scheduled for 9 September 2026.

If Kratos is the rocket and AeroVironment is the technology punt, L3Harris is the more measured bet. Second-quarter revenue increased 8 per cent to US$5.9 billion, diluted EPS rose 28 per cent, and free cash flow climbed 37 per cent to US$771 million. Orders reached US$7.3 billion, pushing backlog to a record US$42 billion. Management also increased its 2026 revenue and earnings guidance. Not quite the fireworks of Kratos, perhaps, but the accountants are unlikely to complain.

The particularly attractive piece is missile production. L3Harris' Missile Solutions revenue rose 14 per cent to US$1.054 billion in the second quarter, helped by greater production and development volumes across missile and munitions programmes. Following its acquisition of Aerojet Rocketdyne, L3Harris has also been investing in additional capacity supporting critical programmes including PAC-3, THAAD, Tomahawk and Standard Missile. As America pushes to expand missile-production capacity, LHX finds itself sitting rather conveniently beside the ammunition cupboard.

Unlike Kratos and AeroVironment, L3Harris already produces substantial free cash flow, making it the less frantic choice. Less fireworks, more financial firepower. Growth may be slower, but record backlog, rising missile production and strong cash generation mean investors do not need every contract announcement to arrive gift-wrapped with a rocket attached.

The investment case, then, is fairly simple. Kratos is the maximum-growth play, with revenue racing higher and drones, engines, rockets and hypersonics providing plenty of potential catalysts. AeroVironment is the next-generation warfare play, combining drones, Switchblade, counter-UAS and now production laser weapons under one increasingly large roof. L3Harris is the risk-adjusted play, offering slower growth but a firmer financial foundation.

None is guaranteed to rise over the next 12 months. Contracts can slip, programmes can stall and richly valued defence stocks have a nasty habit of reminding investors that gravity still exists. But the underlying trend is difficult to ignore. America needs more missiles, more drones, more propulsion and more protection against drones, and it needs considerably more capacity to produce them.

For investors looking beyond yesterday's defence giants towards tomorrow's military technology, KTOS offers the greatest growth potential, AVAV the broadest next-generation technology bet, and LHX the strongest balance of growth and stability. Three stocks, three strategies, and all three sitting close to some of the biggest bottlenecks in America's increasingly expensive arsenal.

This article is general market commentary and does not constitute personal financial advice.