Karman: Defense Darling's Outlook Strengthens After 40% Drop

Defense company Karman (NYSE: KRMN) was a newcomer to public equity markets in 2025, and last year proved to be a revelation for the stock. Karman priced its February 2025 IPO at $22 per share. From that point on, the firm went on a huge 230% run, ending 2025 near $73 per share.

This was a standout performance within the defense sector. Karman beat out the gains of other top defense performers like Kratos Defense & Security Solutions (NASDAQ: KTOS) and Rocket Lab (NASDAQ: RKLB). Those names surged 188% and 174% in 2025, respectively.

Karman’s run didn't stop there, with the stock eventually hitting an all-time high near $115 in January 2026. At that time, it seemed Karman had very much gotten ahead of its skis, trading at a forward price-to-earnings (P/E) ratio above 200x.

Now, Karman’s forward P/E is half that level, and the stock trades more than 40% below its highs. Considering this, and the company’s most recent earnings release, now is a good time to reassess Karman’s outlook and its ability to be a long-term winner.

Karman Beats and Raises in Q1

In Q1 2026, Karman posted record first-quarter revenue of $151.2 million, an increase of 51% year over year (YOY). The figure very slightly beat estimates of nearly $150.19 million.

Meanwhile, adjusted earnings per share (EPS) more than doubled to 11 cents, handily beating estimates of 8 cents, which called for growth of 60%. Notably, Karman posted its fourth quarter in a row of non-adjusted profitability, with GAAP EPS coming in at 6 cents.

Karman also raised its full-year guidance on multiple fronts. The firm now projects midpoint 2026 sales of $727.5 million, a $5 million increase over its previous midpoint guidance.

Karman increased its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) outlook as well. It expects midpoint-adjusted EBITDA of $214 million, up slightly from its prior midpoint guidance of $212.5 million. This marks the second quarter in a row that the firm has raised its 2026 guidance.

Karman saw solid growth across all its key segments:

• Hypersonics and Strategic Missile Defense revenue rose 18.7% YOY.

• Space and Launch rose 29.5% YOY.

• Tactical Missiles and Integrated Defense Systems rose 25% YOY.

Karman also introduced its new Maritime Defense Systems Segment, which emerged largely due to the acquisition of Seemann and MSC. Maritime Defense Systems revenue of $26.41 million already represents a meaningful 17.4% of total revenue.

Overall, Karman continued to grow at a high clip, saw notable profitability gains, and expanded its capabilities to tackle future opportunities: a strong Q1 showing.

Backlog Hits $1 Billion, Experienced CEO Enters the Fold

Looking ahead, Karman holds a significant backlog of $1 billion, which rose by 61% YOY. The figure also increased considerably from $800 million in Q4 2025. The firm’s backlog is nearly 1.4 times higher than the midpoint of its revenue guidance, providing substantial visibility into 2027.

Furthermore, Karman notes that it has 90% visibility into the midpoint of its 2026 revenue guidance. In other words, Karman's Q1 results and the backlog it expects to convert in 2026 account for 90% of its revenue forecast. This significantly de-risks the company’s sales expectations for the rest of the year.

Additionally, Karman received contingent demand commitments with a total potential value of over $1 billion. Essentially, Karman’s prime contractor customers have agreed to send demand to the company for certain projects.

However, that demand is contingent on those prime contractors winning their necessary government contracts. This demand would come over a four-to-seven-year period and is separate from Karman’s stated backlog.

Compared to Karman’s 2026 sales expectations of $727.5 million, actualizing these demand commitments would provide a meaningful growth tailwind.

Notably, Karman has a new CEO in Jon Rambeau, following the retirement of past CEO Tony Koblinski. CEO shake-ups tend to be concerning, but the risk surrounding Karman on this front seems low.

Karman’s business has been doing extremely well, so there is no dependence on the leadership change to reinvigorate the firm. Rambeau also has 30 years of experience in the defense industry, holding senior positions at giants like L3Harris Technologies (NYSE: LHX) and Lockheed Martin (NYSE: LMT).

Karman Looks Much More Enticing After Correction

In summary, Karman had an impressive quarter, forward-looking demand indicators were strong, and its leadership change is not overly concerning. The stock trades at a forward P/E ratio of about 109x, notably below its average forward P/E since going public of 122x.

Wall Street analysts remain bullish on the stock. The MarketBeat consensus price target near $115 implies over 65% upside in shares.

Karman’s valuation is clearly still high, but is significantly more reasonable compared to past levels. Importantly, Karman is a merchant supplier to virtually all prime contractors in space and defense, with representation across over 130 programs and 80 prime customers. It also has exposure to some of the highest-growth parts of the industry.

Overall, as a high-growth and higher-risk defense name, Karman shares now appear much better positioned for long-term success.

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The article "Karman: Defense Darling's Outlook Strengthens After 40% Drop" first appeared on MarketBeat.