Leonardo DRS, Inc. (DRS) | Investment Case

1. Company Snapshot

1.a. Company Description

Leonardo DRS, Inc., together with its subsidiaries, provides defense products and technologies in the land, air, sea, space, cyber and security, and commercial domains for military applications.It operates in two segments, Advanced Sensing and Computing, and Integrated Mission Systems.The company offers advanced sensor technologies, including infrared systems and sensors for threat detection and situational awareness; uncooled infrared systems and brownout solutions; airborne, ground vehicle mounted, and dismounted soldier electronic warfare (EW) systems; and EW software and training systems, and intelligence solutions.

It also provides computing systems for ground vehicles, ships, and submarines; network and data distribution applications; sensor systems; and networked computing infrastructure on military platform.In addition, the company offers force protection systems, such as solutions for counter-unmanned aerial systems, short-range air defense systems, and active protection systems; and power control, distribution, conversion, and propulsion systems, as well as hybrid electric drive propulsion systems, energy storage, gas turbine packages, nuclear instrumentation and controls, and thermal management and refrigeration equipment.It serves the U.S. military, aerospace and defense prime contractors, government intelligence agencies, and international military customers.

The company was founded in 1969 and is based in Arlington, Virginia.

Show Full description

1.b. Last Insights on DRS

Leonardo DRS's recent performance is driven by a favorable business environment, with global defense budget expansion and rising demand for advanced sensor and electronic warfare solutions. The company benefits from a strong backlog and growing demand for its solutions. Recent contracts, including a $151 billion Missile Defense Agency SHIELD IDIQ contract, underscore its position in the market. With a multi-year EBITDA CAGR projected at 12%, the company's growth prospects remain intact. Analysts have a "Moderate Buy" rating, with six assigning a buy recommendation.

1.c. Company Highlights

Last Price	38.19
Change Percentage	-4.59%
Open	39.52
Previous Close	40.03
Market Cap ( Millions)	10160
Volume	804115
Year High	49.31
Year Low	28.17
M A 50	38.04
M A 200	40.72

FCF Yield	2.61%
Dividend Yield	0.94%
ROE	10.22%
Debt / Equity	17.79%
Net Debt / EBIDTA	38.03%
Price To Book	3.82
Price Earnings Ratio	38.16
Price To FCF	38.26
Price To sales	2.84
EV / EBITDA	24.18

2. DRS Technologies' Q3 Earnings: A Strong Performance

DRS Technologies reported a robust financial performance in Q3, with revenue growing 18% year-over-year to $960 million, driven by strong demand for its counter UAS, advanced infrared sensing, naval network computing, and electric power and propulsion technologies. Adjusted EBITDA was up 17%, although margin slightly lagged behind prior year levels due to increased investment in internal research and development. Adjusted diluted EPS increased by 21% to $0.29, beating estimates of $0.28.

Publication Date: Nov -02

                                    📋 Highlights
                                    Record Total Backlog::
                                                Quarterly bookings of $1.3 billion lifted total backlog to $8.9 billion, up 8% YoY and 20% in funded backlog growth.
Revenue and EPS Growth::
                                                Revenue reached $960 million (+18% YoY), with adjusted diluted EPS rising 21% and full-year revenue guidance raised to 10–11% growth.
EBITDA and Free Cash Flow::
                                                Adjusted EBITDA grew 17%, though margins lagged due to R&D investments; free cash flow surpassed prior-year levels significantly.
Counter-UAS Demand::
                                                $250 million in counter-UAS/SRAD contracts secured, with 18–20% of revenue tied to C-UAS programs, reflecting high demand across U.S. and international markets.
Germanium Supply Strategy::
                                                Stabilized pricing for 2025, buffer stock, recycling, and partnerships outside China to address supply risks impacting ASC margins in 2026.

                                

Bookings and Backlog

The company secured $1.3 billion of bookings in the quarter, resulting in a 1.4x book-to-bill ratio, and a record total backlog of $8.9 billion, up 8% year-over-year. Funded backlog also saw remarkable year-over-year growth of 20% in the quarter. According to Michael Dippold, the increase in bookings was driven by demand for counter UAS and short-range air defense programs.

Guidance and Outlook

DRS Technologies increased its full-year revenue growth expectations to 10% to 11%. The company expects Q4 to reflect comparable patterns as last year, with a step down in growth from the first 9 months of the year. Adjusted EBITDA is expected to remain between $437 million and $453 million, with adjusted diluted EPS between $1.07 and $1.12 a share.

Valuation

With a P/E Ratio of 36.79 and an EV/EBITDA of 28.48, the market appears to be pricing in significant growth expectations. Analysts estimate next year's revenue growth at 6.8%. The company's ROE of 10.22% and ROIC of 8.8% indicate a relatively healthy profitability profile. The dividend yield of 0.74% and free cash flow yield of 2.72% provide some income support.

Investment Highlights

The company's investment in Hoverfly and its focus on counter UAS and unmanned surface vessels are expected to drive growth. DRS Technologies is also exploring alternative materials to replace germanium, such as glass-based solutions. With a strong backlog and increasing demand for its technologies, the company is well-positioned for future growth.

3. NewsRoom

Leonardo DRS Awarded Contracts for the Missile Defense Agency SHIELD IDIQ

Feb -17

Source: businesswire.com

The Drone Supercycle Wall Street Still Hasn’t Priced In

Feb -07

Source: investorplace.com

Leonardo DRS: The Strong Buy Delivered, Here's Why I'm Downgrading It And What Comes Next

Feb -02

Source: seekingalpha.com

Defense Stocks Ignite as $900 Billion Pentagon Budget Triggers AI Tech Revolution

Jan -27

Source: prnewswire.com

Leonardo DRS to Provide Advanced Space-Based Infrared Sensor Payload for Missile Defense Program

Jan -27

Source: businesswire.com

Leonardo DRS Opens Advanced Naval Power and Propulsion Facility in Charleston, South Carolina

Jan -23

Source: businesswire.com

Axon Vision Receives Order from Leonardo DRS for AI-Driven C-UAS systems

Jan -12

Source: prnewswire.com

Leonardo DRS Schedules Fourth Quarter 2025 and Full Year 2025 Earnings Conference Call for February 24, 2026

Jan -12

Source: businesswire.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (6.80%)

6. Segments

Advanced Sensing and Computing

Expected Growth: 6.5%

Advanced Sensing and Computing from Leonardo DRS, Inc. is driven by increasing demand for autonomous systems, cyber security, and advanced sensing technologies in the defense and commercial markets, coupled with the company's investments in R&D, strategic acquisitions, and partnerships, resulting in a growth rate of 6.5%.

Integrated Mission Systems

Expected Growth: 7.5%

Leonardo DRS's Integrated Mission Systems growth is driven by increasing demand for advanced military communications, electronic warfare, and network-centric warfare capabilities. The company's expertise in systems integration, cybersecurity, and C4ISR (Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance) solutions also contributes to its growth. Additionally, the rising need for modernization and upgrades of existing military systems fuels the segment's 7.5% growth.

Corporate and Eliminations

Expected Growth: 0.0%

For Corporate and Eliminations from Leonardo DRS, Inc., the 0.0% growth is attributed to stagnant top-line performance, lack of significant acquisitions, and absence of cost savings initiatives. Additionally, the segment's limited scalability and lack of diversification hinder its growth potential.

7. Detailed Products

Integrated Sensing Systems

Advanced sensing systems for military and commercial applications, including radar, electronic warfare, and signals intelligence

Force Protection Systems

Advanced systems for force protection, including counter-IED, counter-UAS, and active protection systems

Network Computing and Cyber

Advanced network computing and cyber solutions for military and commercial applications, including cloud computing, cybersecurity, and data analytics

Electro-Optical/Infrared (EO/IR) Systems

Advanced EO/IR systems for military and commercial applications, including sensors, cameras, and targeting systems

Advanced Military Communications

Advanced communication systems for military applications, including satellite communications, tactical radios, and network infrastructure

Land Electronics

Advanced electronic systems for military and commercial applications, including vetronics, C4ISR, and electronic warfare

Naval Electronics

Advanced electronic systems for naval applications, including radar, electronic warfare, and communication systems

Airborne Electronics

Advanced electronic systems for airborne applications, including avionics, radar, and electronic warfare

8. Leonardo DRS, Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for Leonardo DRS, Inc. is medium due to the presence of alternative defense contractors and technology providers.

Bargaining Power Of Customers

The bargaining power of customers is low due to the specialized nature of Leonardo DRS, Inc.'s products and services, which limits the ability of customers to negotiate prices.

Bargaining Power Of Suppliers

The bargaining power of suppliers is medium due to the presence of multiple suppliers for raw materials and components, but the specialized nature of some components limits the bargaining power of suppliers.

Threat Of New Entrants

The threat of new entrants is low due to the high barriers to entry in the defense industry, including the need for significant capital investment and specialized expertise.

Intensity Of Rivalry

The intensity of rivalry is high due to the presence of several established competitors in the defense industry, leading to intense competition for contracts and market share.

9. SWOT Analysis

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

	Value
Debt Weight	12.36%
Debt Cost	8.02%
Equity Weight	87.64%
Equity Cost	8.02%
WACC	8.02%
Leverage	14.11%

11. Quality Control: Leonardo DRS, Inc. passed 5 out of 9 key points

Strong Liquidity

Low Debt

Strong Interest Coverage

Healthy Cash Flow

Operating Efficiency

Strong Return On Equity

Consistent Revenue Growth

Consistent Operating Cash Flow Growth

Margin Improvement

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Spirit AeroSystems

A-Score: 5.0/10

Value: 9.6

Growth: 1.1

Quality: 5.2

Yield: 0.0

Momentum: 7.0

Volatility: 7.3

1-Year Total Return ->

BWXT

A-Score: 4.9/10

Value: 0.9

Growth: 6.3

Quality: 5.4

Yield: 2.0

Momentum: 9.0

Volatility: 5.7

1-Year Total Return ->

Kratos Defense

A-Score: 4.5/10

Value: 2.4

Growth: 5.2

Quality: 5.9

Yield: 0.0

Momentum: 10.0

Volatility: 3.3

1-Year Total Return ->

AAR

A-Score: 4.2/10

Value: 4.8

Growth: 4.8

Quality: 3.1

Yield: 0.0

Momentum: 7.5

Volatility: 5.3

1-Year Total Return ->

Leonardo DRS

A-Score: 4.1/10

Value: 2.3

Growth: 3.7

Quality: 6.2

Yield: 1.0

Momentum: 5.5

Volatility: 6.0

1-Year Total Return ->

Axon Enterprise

A-Score: 3.8/10

Value: 0.0

Growth: 9.6

Quality: 5.2

Yield: 0.0

Momentum: 4.0

Volatility: 4.0

1-Year Total Return ->

Peers Metrics

12.e Scoring ^Insights

12.f DCF ^BETA

Parameters

Short Term Growth

14.80%

Short term Time

10.0

Long-Term Growth

2.00%

WACC

8.02%

Leonardo DRS, Inc. - US52661A1088

1. Company Snapshot

1.a. Company Description

1.b. Last Insights on DRS

1.c. Company Highlights

Strong Momentum

Fairly Valued

Average Yield

Earnings Beats

Expensive

Revenues Beats

Revenues Miss

Average Growth

2. DRS Technologies' Q3 Earnings: A Strong Performance

Bookings and Backlog

Guidance and Outlook

Valuation

Investment Highlights

3. NewsRoom

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (6.80%)

6. Segments

Advanced Sensing and Computing

Expected Growth: 6.5%

Integrated Mission Systems

Expected Growth: 7.5%

Corporate and Eliminations

Expected Growth: 0.0%

7. Detailed Products

Integrated Sensing Systems

Force Protection Systems

Network Computing and Cyber

Electro-Optical/Infrared (EO/IR) Systems

Advanced Military Communications

Land Electronics

Naval Electronics

Airborne Electronics

8. Leonardo DRS, Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

Bargaining Power Of Customers

Bargaining Power Of Suppliers

Threat Of New Entrants

Intensity Of Rivalry

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

11. Quality Control: Leonardo DRS, Inc. passed 5 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

38.13$

Current Price

38.13$

Potential

-0.00%

Expected Cash-Flows

12.e Scoring ^Insights

12.f DCF ^BETA