Piper Sandler Highlights Five Defense Tech Stocks Amid Sector Weakness

Piper Sandler has flagged five defense technology companies it favors for their growth potential, pointing to strong contract awards and expanding backlogs. The brokerage's bullish outlook comes even as the broader sector has experienced a significant sell-off and faces uncertainty over future U.S. defense spending.

Sector Headwinds Meet Strong Fundamentals

According to Piper Sandler, its Defense Tech index has declined approximately 25% since mid-August, with rising interest rates and questions surrounding fiscal 2027 government funding weighing on valuations. Despite these macroeconomic pressures, the firm noted that contract awards in the third quarter are expected to remain robust.

This environment has led Piper Sandler to lower its price targets on several of the highlighted companies, reflecting the valuation impact of higher rates. However, the firm maintained its "Overweight" ratings, signaling confidence in the underlying business fundamentals and long-term demand for advanced military systems.

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Analyst's Top Picks

Piper Sandler identified specific catalysts and growth drivers for each of its favored stocks:

• Kratos Defense & Security Solutions (KTOS): The firm sees its hypersonic business as a key growth driver, supported by about $400 million in recent funding. Piper Sandler lowered its price target to $61 from $75 but maintained an Overweight rating.
• Karman Holdings (KRMN): Analysts expect backlog growth to accelerate after the company reported a $1.3 billion backlog, an 84% year-over-year increase. A new seven-year, $218 million contract for Lockheed Martin's THAAD program also supports the outlook. The price target was cut to $59 from $91.
• Mercury Systems (MRCY): With bookings growing about 93% in the previous quarter, the brokerage anticipates profitability will improve as Mercury works through its lower-margin backlog. The price target was reduced to $107 from $131.
• HawkEye 360 (HAWK): The company's international contract wins, totaling more than $36 million in the third quarter, were a key highlight. Piper Sandler sees further growth potential from domestic contracts and the expansion of its satellite-based intelligence business, maintaining a $22 price target.
• LightPath Technologies (LPTH): The firm estimates LightPath has a known backlog of about $110 million expected to be recognized in fiscal 2027. However, it noted that production constraints could limit the speed of revenue conversion. The price target was lowered to $13 from $15.