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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.

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1.b. Last Insights on DRS

Leonardo DRS' recent performance was driven by strong Q4 2025 earnings, with revenue up 8% year-over-year and net earnings of $102 million. The company's earnings of $0.42 per share beat the Zacks Consensus Estimate of $0.37 per share. A recent contract award from the Missile Defense Agency (MDA) with a ceiling of $151 billion also contributed to the positive momentum. Additionally, the company's solutions are in high demand due to rising global defense spending, supporting mid-to-high single-digit revenue growth. (Source: MarketBeat Ratings: "Moderate Buy" from 9 analysts)

1.c. Company Highlights

2. Leonardo DRS' Strong 2025 Results and Promising Outlook

Leonardo DRS reported a robust financial performance for full-year 2025, with revenue reaching $3.6 billion, representing 13% organic growth versus 2024. The company's adjusted EBITDA was $453 million, a 13% year-over-year increase. Diluted EPS and adjusted diluted EPS rose 15% and 11% year over year in the fourth quarter, respectively, with actual EPS coming in at $0.3795, slightly beating estimates of $0.37.

Publication Date: Feb -25

📋 Highlights
  • Organic Revenue Growth: Full-year 2025 revenue reached $3.6 billion, reflecting 13% organic growth. Advanced Sensing and Computing segment grew 11% annually, while Integrated Mission Systems rose 15%.
  • Free Cash Flow Expansion: Delivered 19% full-year free cash flow growth in 2025, with 80% conversion of adjusted net earnings expected in 2026 due to working capital efficiencies.
  • R&D & CapEx Surge: 2025 R&D investment increased 40%, and capital expenditures rose over 60%. CapEx is projected to trend toward 5% of revenue in 2026, with $300 million allocated for Charleston facility expansion.
  • Backlog & Guidance: Ended 2025 with $8.7 billion in backlog. 2026 revenue guidance set at $3.85–$3.95 billion (6–8% organic growth), with adjusted EBITDA targeting $500–$525 million and margin expansion of 70–90 bps.

Segment Performance

The Advanced Sensing and Computing segment delivered revenue growth of 9% in Q4 and 11% for the full year, while the Integrated Mission Systems segment achieved year-over-year growth of 5% in Q4 and a healthy 15% for the full year. The strong demand in IMS from the naval power business drove the margin, which was fueled by volume leverage.

Guidance and Outlook

For 2026, Leonardo DRS is initiating a revenue range of $3.85 billion to $3.95 billion, implying 6% to 8% organic growth, which is slightly above analysts' estimates of 6.0% revenue growth. The company expects adjusted EBITDA of $500 million to $525 million, with an implied year-over-year margin improvement of 70 to 90 basis points. The guidance assumes an 18.5% tax rate and a fully diluted share count of 269 million.

Valuation and Growth Prospects

With a P/E Ratio of 41.82, P/B Ratio of 4.26, and P/S Ratio of 3.2, the market seems to have priced in significant growth expectations. The EV/EBITDA ratio of 54.6 indicates a relatively high valuation. However, the company's strong track record of growth, with 16 consecutive quarters of being either at or above one time book-to-bill ratio, and its diversified portfolio, position it well for continued growth. As John Baylouny mentioned, "We are incredibly proud of the team’s relentless focus and their immense contributions in support of our critical national security priorities." The company's commitment to investing in R&D and expanding its capabilities is expected to drive long-term growth.

Investment Strategy

Leonardo DRS plans to continue its robust company-funded R&D investment at a comparable percentage of revenue to 2025, focusing on expanding its footprint in high-growth markets. The company is also increasing its capital expenditures, with a projected CapEx of approximately 5% of revenue in 2026. The top priority is organic investments, and the company expects to invest in CapEx and IRAD to drive growth in the out years.

3. NewsRoom

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Why Leonardo DRS Stock Trounced the Market Today

Feb -25

Source: fool.com

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Leonardo DRS, Inc. (DRS) Q4 2025 Earnings Call Transcript

Feb -24

Source: seekingalpha.com

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Why Is Leonardo DRS Stock Soaring Tuesday?

Feb -24

Source: feeds.benzinga.com

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Leonardo DRS, Inc. (DRS) Q4 Earnings: Taking a Look at Key Metrics Versus Estimates

Feb -24

Source: zacks.com

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Leonardo DRS, Inc. (DRS) Q4 Earnings and Revenues Beat Estimates

Feb -24

Source: zacks.com

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Leonardo DRS Awarded Contracts for the Missile Defense Agency SHIELD IDIQ

Feb -17

Source: businesswire.com

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The Drone Supercycle Wall Street Still Hasn’t Priced In

Feb -07

Source: investorplace.com

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

Feb -02

Source: seekingalpha.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

Strength

Weaknesses

Opportunities

Threats

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

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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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

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BWXT

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Value: 0.9

Growth: 6.3

Quality: 5.4

Yield: 2.0

Momentum: 9.0

Volatility: 5.7

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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

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AAR

A-Score: 4.2/10

Value: 4.8

Growth: 4.8

Quality: 3.1

Yield: 0.0

Momentum: 7.5

Volatility: 5.3

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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

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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

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

46.95$

Current Price

46.95$

Potential

-0.00%

Expected Cash-Flows