Is Leonardo DRS Still Worth Watching After a 51% Surge and Record Backlog in 2025?
If you have been tracking defense stocks lately, you have probably noticed the buzz around Leonardo DRS. The company’s shares have been on a tear this year, notching an impressive 32.4% gain since the start of 2024. They are also up 51.1% over the past year. Even over the last week and month, the stock has managed to stay in the green, rising 2.1% and 4.1%, respectively. These movements are catching the eye of investors and analysts alike as they reflect renewed confidence in the sector amid shifting market sentiment and a broader focus on national security technologies.
With all this momentum, you might be wondering whether Leonardo DRS is still a good buy, or if the stock’s recent run-up has left it looking a bit pricey. That is where valuation comes into play. Here is an interesting data point: when running through six key valuation checks, Leonardo DRS doesn’t score as undervalued in any of them, giving it a value score of 0 out of 6. In other words, the market may already be pricing in a lot of optimism and future potential.
As every savvy investor knows, not all valuation methods tell the whole story, and sometimes there is more beneath the surface than the numbers suggest. In the next section, we will walk through the various valuation approaches and see how Leonardo DRS measures up before exploring an even better way to assess its true worth.
Leonardo DRS scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.Approach 1: Leonardo DRS Discounted Cash Flow (DCF) Analysis
The Discounted Cash Flow (DCF) model estimates a company's value by projecting its future cash flows and discounting them back to the present to reflect today’s value. This approach helps investors gauge what the business is truly worth based on its potential to generate real cash over the coming years.
For Leonardo DRS, the starting point is its latest Free Cash Flow (FCF), which stands at $243 million. Analysts provide estimates out to 2027, with FCF expected to grow to $348 million by then. Beyond this, projections are extrapolated, and by 2035, the company’s annual FCF is forecasted to be around $578 million. These expectations factor in growth rates that taper slightly over time but remain positive.
When these future cash flows are discounted back to today’s dollars using the 2 Stage Free Cash Flow to Equity model, the estimated intrinsic value for Leonardo DRS comes out to $34.10 per share. Comparing this with the actual market price, the DCF calculation suggests the stock is currently about 25.7% overvalued.
Result: OVERVALUED
Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Leonardo DRS.
Approach 2: Leonardo DRS Price vs Earnings
The price-to-earnings (PE) ratio is a widely used valuation tool for companies that are consistently profitable, like Leonardo DRS. The PE ratio offers a quick way to gauge how much investors are paying today for every dollar of a company's earnings. It is especially useful when analyzing firms with a solid earnings history, as it directly links stock price to the company’s profit generation.
It is important to note that a normal or fair PE ratio is influenced by several factors. Companies with higher growth prospects or lower risks often deserve a higher PE ratio because investors are willing to pay a premium for future results and stability. Conversely, slower-growing or riskier companies command lower multiples. That means simply being above or below the industry average does not automatically make a stock overvalued or undervalued without context.
Leonardo DRS currently trades at a PE ratio of 45.6x, well above the average for its aerospace and defense industry peers at 37.0x, and higher than the peer average of 34.9x. However, Simply Wall St’s proprietary Fair Ratio for Leonardo DRS is 26.4x. This Fair Ratio is designed to be more tailored than industry or peer comparisons alone because it incorporates specifics like the company’s expected earnings growth, profit margins, risk factors, and its size in the market. By using this approach, investors get a more accurate sense of value tailored to the company’s unique outlook rather than a one-size-fits-all benchmark.
Comparing the actual PE ratio of 45.6x to its Fair Ratio of 26.4x suggests that Leonardo DRS is trading at a premium that does not seem justified by its current fundamentals and outlook.
Result: OVERVALUED
Upgrade Your Decision Making: Choose your Leonardo DRS Narrative
Earlier, we alluded to a better way to understand valuation, so let's introduce you to Narratives. A Narrative is an investor’s personal story or point of view about a company’s future. It combines your assumptions about its fair value, future revenue, earnings, risks, and margins with the company’s actual business fundamentals.
This storytelling approach links the company’s journey directly to your financial forecast and then to an estimated fair value, making investment decisions easier and more transparent. Narratives are a feature on Simply Wall St’s Community page, used by millions of investors, where you can see how others interpret the data or add your own outlook with just a few clicks.
Narratives help you decide when to buy or sell by comparing fair value (from your Narrative) to the current market price, so you always know where you stand. Because they are updated automatically whenever new information, from earnings to industry news, appears, your outlook remains current and actionable.
For example, with Leonardo DRS, some investors’ Narratives see potential for the stock to reach $49.00 based on robust defense budgets and margin outlook, while others are more cautious with lower targets if risks like supply constraints or government contract delays grow.
Do you think there's more to the story for Leonardo DRS? Create your own Narrative to let the Community know!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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