Leonardo Drs (DRS) AI Stock Analysis

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Leonardo Drs

(NASDAQ:DRS)

Rating:71Outperform

Price Target:―

Leonardo DRS shows strong financial performance and positive earnings sentiment, indicating a solid foundation for growth. However, high valuation metrics and technical indicators suggesting overbought conditions introduce caution. While the company is well-aligned with defense priorities, challenges such as supply chain issues and margin pressures need to be managed.

Positive Factors

Capital Deployment

Management's change in stance to a more shareholder friendly capital deployment approach includes the company's first dividend payment and a share buyback program.

Earnings

DRS's 1Q25 earnings beat marks a strong start to the year.

Strategic Opportunities

Golden Dome presents an opportunity for the company with competitive offerings in DRS's short-range air defense, OTH radar, and space-based sensing capabilities.

Negative Factors

Market Risks

China's ban on germanium export poses a risk to the weapon sights business, although DRS has several years worth of supply on hand.

Trading Volumes

Trading volumes remain low and upside shipbuilding opportunities might not be realized until the South Carolina facility is operational.

Valuation

At a ~21.5x EV/2026 EBITDA, DRS is currently trading at a ~3-turn premium to peers, presenting a more balanced risk-reward proposition.

Leonardo Drs (DRS) vs. SPDR S&P 500 ETF (SPY)

Market Cap

$10.92B

Dividend Yield0.22%

Average Volume (3M)978.34K

Price to Earnings (P/E)47.1

Beta (1Y)1.08

Revenue Growth13.58%

EPS Growth25.96%

CountryUS

Employees7,000

SectorIndustrials

Sector Strength92

IndustryAerospace & Defense

Share Statistics

EPS (TTM)0.20

Shares Outstanding266,049,200

10 Day Avg. Volume928,761

30 Day Avg. Volume978,342

Financial Highlights & Ratios

PEG Ratio4.79

Price to Book (P/B)4.31

Price to Sales (P/S)0.00

P/FCF Ratio38.19

Enterprise Value/Market CapN/A

Enterprise Value/RevenueN/A

Enterprise Value/Gross ProfitN/A

Enterprise Value/EbitdaN/A

Forecast

1Y Price Target

$44.75

Price Target Upside5.29% Upside

Rating ConsensusStrong Buy

Number of Analyst Covering5

Leonardo Drs Business Overview & Revenue Model

Company DescriptionLeonardo DRS (DRS) is a leading mid-tier defense contractor in the United States, specializing in advanced technology solutions for military and commercial customers. The company is part of Leonardo S.p.A., an Italian multinational aerospace, defense, and security company. Leonardo DRS operates in several sectors, including naval systems, communications and network technologies, electro-optical and infrared systems, and integrated mission systems. Its core products and services cater to the needs of U.S. military forces, homeland security agencies, and international allies, providing innovative solutions for surveillance, reconnaissance, and electronic warfare.

How the Company Makes MoneyLeonardo DRS generates revenue primarily through government contracts and defense procurement programs. A significant portion of its income comes from the U.S. Department of Defense, as it supplies various branches of the military with advanced technology and systems. The company also earns from international sales to allied nations, which rely on its expertise in areas like naval defense and electronic warfare systems. Additionally, Leonardo DRS engages in strategic partnerships and collaborations to enhance its product offerings and expand market reach, contributing to its revenue streams. The firm's ability to innovate and adapt its solutions to evolving defense needs plays a crucial role in maintaining a steady revenue flow.

Leonardo Drs Earnings Call Summary

Earnings Call Date:May 01, 2025

(Q1-2025)

% Change Since: 15.24%|

Next Earnings Date:Jul 30, 2025

Earnings Call Sentiment Positive

Leonardo DRS reported strong Q1 performance with significant bookings, backlog growth, and strategic alignment with defense priorities. However, challenges related to supply chain disruptions and margin pressures in the ASC segment were noted. The overall business outlook remains positive, supported by robust demand and operational improvements.

Q1-2025 Updates

Positive Updates

Strong Bookings and Backlog

Leonardo DRS secured nearly $1 billion in bookings in Q1, translating to a 1.2 book-to-bill ratio. The company achieved its 13th consecutive quarter with a book-to-bill above 1, increasing the backlog to $8.6 billion.

Remarkable Organic Growth

The company experienced organic growth of 16% in Q1, with profit expansion and improved cash flow, driven by material receipts pulled into the quarter.

Successful Capital Return Initiatives

Leonardo DRS commenced the execution of capital return initiatives with the payment of its first dividend and initial stock repurchases.

Advanced Infrared Sensing Demand

High demand was noted for advanced infrared sensing, electric power and propulsion, and tactical radars, contributing to the company's growth.

Positive Adjusted EBITDA Growth

Adjusted EBITDA in Q1 was $82 million, representing a 17% growth from last year.

Defense Budget Alignment

The company is well-aligned with U.S. defense priorities, particularly in shipbuilding, force protection, and the nuclear triad.

Negative Updates

Supply Chain Challenges

Challenges arose with a sole source optics supplier unable to execute on purchase orders due to China's restrictions on rare earth minerals, impacting profitability.

ASC Margin Pressure

ASC segment margin declined by 130 basis points due to negative contract adjustments and increased germanium costs.

International Program Supplier Issue

A supplier issue on an international program led to increased costs as Leonardo DRS sought alternative germanium sources.

Potential Tariff Impacts

The potential implications of tariffs were discussed, although the company expects relative insulation due to its U.S.-centric operations.

Company Guidance

During the Leonardo DRS First Quarter Fiscal Year 2025 Earnings Conference Call, the company reported strong financial performance, surpassing expectations with a 16% organic growth in revenue and adjusted EBITDA growth of 17%, reaching $82 million. The company's book-to-bill ratio was 1.2, with nearly $1 billion in bookings that increased the backlog to a record $8.6 billion. Leonardo DRS maintained its full-year guidance, projecting revenue between $3.45 billion and $3.525 billion, with an adjusted EBITDA forecast of $435 million to $455 million and adjusted diluted EPS in the range of $1.02 to $1.08. The company highlighted its diversified portfolio, strong demand across its segments, and ongoing capital return initiatives, including dividends and stock repurchases. Despite a dynamic operating environment and challenges such as increased germanium costs, the company expressed confidence in its ability to achieve its 2025 outlook, supported by a robust defense budget and strategic alignment with national defense priorities.

Leonardo Drs Financial Statement Overview

Summary

Leonardo DRS presents strong financial performance with significant revenue growth and stable profitability. The company's low debt levels, strong balance sheet, and excellent cash flow generation enhance its financial robustness. Monitoring liquidity and capital allocation can further consolidate its position.

Income Statement

Very Positive

Leonardo DRS has shown strong revenue growth over recent years, with an increase from $2,778 million in 2020 to $3,345 million in TTM (Trailing-Twelve-Months). The gross profit margin has improved to 22.7%, reflecting efficient cost management. The EBIT margin is consistent at 9.3%, and the net profit margin is solid at 7.0%. These metrics indicate robust profitability and operational efficiency, making the income statement a strong point for the company.

Balance Sheet

Positive

The company's balance sheet reveals a stable financial position with a debt-to-equity ratio of 0.14, indicating low leverage. The equity ratio stands at 62.8%, highlighting a strong equity base. The return on equity is healthy at 9.1%, showing effective use of shareholder funds. Overall, the balance sheet is solid, though there is room for improvement in liquidity and asset utilization.

Cash Flow

Positive

Leonardo DRS demonstrates positive cash flow dynamics with a significant increase in free cash flow to $291 million in TTM. The operating cash flow to net income ratio is 1.70, indicating strong cash generation relative to earnings. The free cash flow growth rate is impressive, highlighting the company's ability to generate surplus cash even after capital expenditures. These factors contribute to a strong cash flow position.

TTM	Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Breakdown
Income Statement		Total Revenue
3.35B	3.23B	2.83B	2.69B	2.88B	2.78B
	Gross Profit
758.00M	736.00M	648.00M	575.00M	547.00M	494.00M
	EBIT
312.00M	293.00M	231.00M	561.00M	236.00M	181.00M
	EBITDA
394.00M	376.00M	313.00M	624.00M	293.00M	229.00M
	Net Income Common Stockholders
234.00M	213.00M	168.00M	405.00M	154.00M	85.00M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
380.00M	598.00M	467.00M	306.00M	240.00M	61.00M
	Total Assets
4.10B	4.18B	3.92B	3.68B	3.07B	2.96B
	Total Debt
452.00M	458.00M	497.00M	394.00M	490.00M	530.00M
	Net Debt
72.00M	-140.00M	30.00M	88.00M	250.00M	469.00M
	Total Liabilities
1.52B	1.63B	1.60B	1.55B	1.48B	1.53B
	Stockholders Equity
2.57B	2.56B	2.33B	2.13B	1.59B	1.43B
Cash Flow		Free Cash Flow
291.00M	186.00M	145.00M	-32.00M	118.00M	69.00M
	Operating Cash Flow
398.00M	271.00M	205.00M	33.00M	178.00M	125.00M
	Investing Cash Flow
-106.00M	-84.00M	-59.00M	436.00M	39.00M	-70.00M
	Financing Cash Flow
-72.00M	-56.00M	15.00M	-403.00M	-38.00M	-80.00M

Leonardo Drs Technical Analysis

Technical Analysis Sentiment

Positive

Last Price42.50

Price Trends

50DMA

36.77

Positive

100DMA

34.74

Positive

200DMA

32.65

Positive

Market Momentum

MACD

1.39

Positive

RSI

67.31

Neutral

STOCH

46.63

Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For DRS, the sentiment is Positive. The current price of 42.5 is above the 20-day moving average (MA) of 40.81, above the 50-day MA of 36.77, and above the 200-day MA of 32.65, indicating a bullish trend. The MACD of 1.39 indicates Positive momentum. The RSI at 67.31 is Neutral, neither overbought nor oversold. The STOCH value of 46.63 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for DRS.

Leonardo Drs Risk Analysis

Leonardo Drs disclosed 55 risk factors in its most recent earnings report. Leonardo Drs reported the most risks in the “Finance & Corporate” category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

Leonardo Drs Peers Comparison

Overall Rating

UnderperformOutperform

Sector (65)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
BWXT	79 Outperform	$10.92B	37.99	28.24%	0.81%	9.87%	14.16%
ERJ	76 Outperform	$8.70B	21.90	13.36%	―	22.29%	51.90%
DRS	71 Outperform	$10.92B	47.07	9.50%	0.22%	13.58%	25.96%
HII	71 Outperform	$8.94B	16.42	12.27%	2.36%	-1.04%	-21.80%
SARO	68 Neutral	$9.59B	136.12		―	16.92%	―
Sector *	65 Neutral	$4.41B	12.06	5.22%	249.80%	4.09%	-12.16%
RKLB	56 Neutral	$13.27B	―	-45.38%	―	64.98%	-10.52%

* Industrials Sector Average

Performance Comparison

DRS

Leonardo Drs

42.50

19.39

83.90%

ERJ

Embraer SA

48.58

20.49

72.94%

HII

Huntington Ingalls

227.84

-14.48

-5.98%

BWXT

BWX Technologies

122.36

35.17

40.34%

RKLB

Rocket Lab USA

28.76

24.58

588.04%

SARO

StandardAero, Inc.

28.68

-4.29

-13.01%

Leonardo Drs Corporate Events

Financial Disclosures

Leonardo DRS Reports Strong Q1 2025 Financial Results

Positive

May 1, 2025

Leonardo DRS reported strong financial results for the first quarter of 2025, ending March 31, with a 16% increase in revenue to $799 million and a 72% rise in net earnings to $50 million compared to the previous year. The company also achieved a book-to-bill ratio of 1.2x with $1 billion in bookings and an $8.6 billion backlog, reflecting robust demand for its products and services. The improved profitability and reduced cash flow usage indicate a solid start to the year, positioning the company well for future growth and shareholder returns.

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.