By Tom Kerr, CFA
NASDAQ: DFNS
READ THE FULL DFNS RESEARCH REPORT
Overview
Although T3 Defense (NASDAQ: DFNS) has a history of being involved in the financial technology services industry, since September 2024, the company has transformed into a strategic acquirer and operator of aerospace and defense (A&D) businesses. T3 is building a portfolio of mission-critical suppliers and advanced technology companies and strategic infrastructure opportunities across the defense, aerospace, and advanced manufacturing sectors in Israel, Europe, and the U.S.
T3 is now positioned as a strategic platform company focused on acquiring, integrating, and scaling high-impact businesses in the aerospace and defense industries. The strategy targets Tier 2 and Tier 3 suppliers that form the industrial backbone of national security infrastructure, with particular emphasis on companies offering dual-use technologies, advanced AI applications, and critical manufacturing capabilities. The company’s goal is to acquire companies at attractive valuations with the ability to scale into larger enterprises.
The first step in this transformation was the company’s acquisition of Star 26, a holding company containing three defense-related businesses. In December 2024, T3 Defense announced a purchase agreement for the company, and the transaction was closed in January 2026.
The three core businesses under Star 26 include Rimon (energy systems, drones, and rugged infrastructure manufacturer), ITS (production engineering), and Positech (motion control technologies).
In addition, in 2025, the company acquired Tiltan Software (defense and aerospace software) and Nimbus Drones (unmanned aerial systems).
The company has the potential to expand on a global basis and is well connected to both the Israeli and U.S. defense ecosystems, with subsidiaries and partnerships tied to technologies used in areas such as Iron Dome-related systems, GPS-denied navigation, drone payloads, simulation systems, and AI-enabled military applications.
The company has identified a pipeline of more than 400 potential acquisition targets, primarily consisting of Tier-2 and Tier-3 manufacturers with good customer relationships and significant order backlogs. Many of these businesses are constrained by limited capacity and resources, creating opportunities for strategic growth and operational support.
Global military expenditure reached a record $2.7 trillion in 2024 and is expected to reach $2.9 trillion in 2025. This growth is being driven by the Russia-Ukraine conflict, Middle East and Asia-Pacific tensions, and broader geopolitical realignment. The U.S. remained the largest military spender at a proposed FY26 budget of $997 billion, which is the first-ever trillion-dollar defense request.
The company’s primary operations are currently based in Israel, and company headquarters are located in New York City.
The company controls a separate SPAC with cash in trust of $172.5 million, which will be used to make additional acquisitions (see below for more details). The company has provided a revenue outlook for 2026 in which they expect revenues to reach $26 million. Cash balances and short-term marketable securities were $7.9 million as of 3/31/26.
The company also controls publicly traded Water IO (TASE: WATR) with a 67% ownership stake. The company is currently engaged in smart hydration technology products. Going forward, Water IO will likely make acquisitions in the defense & aerospace sectors. In April 2026, Water IO announced a non-binding letter of intent involving a transaction that would give it control of Israeli defense company Meteor Aerospace. The proposed deal is structured as a $10 million investment or loan by Water IO. If completed, Meteor would issue shares representing 51% ownership on a post-investment basis, which would make Meteor a controlled subsidiary of Water IO.
Based on a discounted cash flow calculation using conservative estimates, we believe DFNS stock to be worth approximately $1.50 per share.
Valuation
We believe T3 Defense can generate double-digit revenue growth over the next 10 years through organic growth and accretive acquisitions. We believe gross margins can reach the mid-to-high 30% range and, over the long term, approach 40%. Typically, Israeli defense companies have higher than industry-average gross margins due to a greater emphasis on software, sensors, and simulation technology rather than large-scale platform manufacturing. We believe EBITDA margins will be slightly positive in 2027 and grow significantly thereafter.
Our primary valuation tool utilizes a Discounted Cash Flow process. Under the scenario described above, we arrive at a target valuation of $1.50 per share. Our target price may be conservative as it incorporates a high discount rate of 12.5% due to the unpredictability of earnings, prevailing interest rates, and the timeline for reaching its margin goals on an annual basis. Also, this price target is based on the current portfolio of companies and does not take into account future acquisitions.
We also use forward price/sales multiples to validate our target price. The average 2027 price/sales multiple for small-cap defense companies based on 2027 revenue estimates is approximately 3.3x.
That would provide a price target of $1.83 per share for DFNS based on our 2027 revenue estimates.
Summary
T3 Defense is positioning itself as a defense-focused holding company whose mission is to build what it calls an “asymmetric edge” for modern national security. The company’s strategy is to acquire, integrate, and scale smaller aerospace and defense businesses that operate in critical areas of the defense industrial base.
T3 Defense is seeking to build a platform company that owns and operates multiple specialized defense technology businesses rather than relying on a single product line. The company focuses on acquiring and scaling businesses involved in key areas of modern defense and national security, including AI for battlefield decision-making, drones and counter-drone systems (UAV/C-UAS), command-and-control technologies, 3D mapping and surveillance solutions, aviation maintenance and infrastructure, as well as tactical robotics and advanced manufacturing capabilities.
The company has the potential to expand on a global basis and is well connected to both the Israeli and U.S. defense ecosystems, with subsidiaries and partnerships tied to technologies used in areas such as Iron Dome-related systems, GPS-denied navigation, drone payloads, simulation systems, and AI-enabled military applications.
Our primary valuation tool utilizes a Discounted Cash Flow process. Under the scenario described above, we arrive at a target valuation of $1.50 per share. Our target price may be conservative as it incorporates a high discount rate of 12.5% due to the unpredictability of earnings, prevailing interest rates, and the timeline for reaching margin goals on an annual basis. Also, this price target is based on the current portfolio of companies and does not take into account future acquisitions.
Comparable defense peers trade at approximately 3.3x projected 2027 sales, suggesting meaningful upside if T3 Defense executes on its growth strategies.
Using 2026 as the starting point for ongoing operations with five closed acquisitions, we believe strong revenue growth is expected beyond 2026, and that the company’s current market capitalization significantly undervalues the company’s long-term potential for strong, high margin revenue growth and sustained free-cash-flow generation.
SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR.
DISCLOSURE: Zacks SCR has received compensation from the issuer directly, from an investment manager, or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks SCR provides and Zacks SCR receives payments totaling a maximum fee of up to $50,000 annually for these services provided to or regarding the issuer. Full Disclaimer HERE.