Leonardo DRS, Inc. (DRS): what the price requires
At today's price, Leonardo DRS, Inc. (DRS) is priced for today's economics sustained for ~8.7 years. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-14 · Exported: 2026-07-17 · Source: https://boothcheck.com/report/DRS
Headline
| Field | Value |
|---|---|
| Ticker | DRS |
| Company | Leonardo DRS, Inc. |
| Current price | $43.23/sh |
| Composition | Advanced Sensing and Computing (ASC) 64% / Integrated Mission Systems (IMS) 36% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 8.1% |
| Operating margin today | 8.7% |
| Margin compression implied | -0.6pp |
| Must persist for | 8.7y |
| Multiple paid | 39x operating income |
The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.
Solve inputs: computed at a 9.6% cost of capital; growth searched up to the 25% self-funding ceiling; each 1pp moves the implied horizon ~2 years.
How unusual the bet is: high
| Reference | Value |
|---|---|
| vs own history | +0.01σ |
| cohort percentile (of 225 peers) | 81 |
| sustained it ~8.7 years at this level | 17% |
| implied end-window share | 0% |
Valuation X-Ray
Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 3.49x | 5 | expensive |
| Earnings | 3.61x | 5 | expensive |
| Relative | 1.57x | 5 | expensive |
| Growth | 1.12x | 3 | expensive |
Families that justify the price: Growth Families that call it expensive: Asset, Earnings, Relative
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 9.2%); the inversion above states its own rate.
Per-Model Detail (n=18)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $28.94 | 1.49x | yes | FCF base $0.3B, growth 11% (input: historical growth), terminal g 4.0%, WACC 9.2%, 6yr projection |
| DCF Exit Multiple | Growth | $44.90 | 0.96x | yes | Exit EV/EBITDA: 22.8x / 24.8x / 26.8x (bear / base = today's held flat / bull), 6yr |
| Relative Valuation | Relative | $31.45 | 1.37x | yes | P/E 27.42x (blended: static sector reference 22x + trailing (TTM) 40x), scenarios: 22.8x / 27.4x / 32.0x (bear / base = reference held flat / bull), EV/EBITDA 17.25x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $11.67 | 3.70x | yes | BV/sh $10.31, ROE (TTM) 10.5%, ke 9.3% |
| Two-Stage Excess Return | Asset | $12.39 | 3.49x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $38.55 | 1.12x | yes | Rev $3.7B, growth 11% (input: historical growth; tapered), Terminal P/S: 2.6x / 3.1x / 3.7x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $26.61 | 1.62x | yes | EPS $1.07, growth 25% (input: historical EPS growth), PEG=1.61 (Overvalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $11.96 | 3.61x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $0.34B × (1−19%) / WACC 9.2% → EPV (no growth) |
| Residual Income | Asset | $12.52 | 3.45x | yes | BV $10.31 + 5yr PV of (ROE (TTM) 10.5% − Kₑ 9.3%) × BV; BV grows 6.8%/yr |
| Graham Number | Asset | $15.75 | 2.74x | yes | √(22.5 × EPS $1.07 × BVPS $10.31) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $24.70 | 1.75x | yes | EBITDA $0.46B × sector EV/EBITDA 14.0x |
| FCF Yield | Earnings | $12.84 | 3.37x | yes | FCF $301.0M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $11.72 | 3.69x | yes | SBC-adj FCF $0.27B (FCF $0.30B − SBC $0.03B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $34.53 | 1.25x | yes | EPS $1.07 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $2.70 | 16.01x | yes | BV $10.31 × (ROIC 2.4% / WACC 9.2%) |
| P/Sales Sector | Relative | $27.50 | 1.57x | yes | Revenue $3.69B × sector P/S 2.0x |
| PEG Fair Value | Relative | $39.92 | 1.08x | yes | EPS $1.07 × (PEG 1.5 × growth 24.9% (input: historical EPS growth)) → PE 37.3x |
| Earnings Yield | Earnings | $11.57 | 3.74x | yes | EPS $1.07 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net debt | $137.0m |
| Net debt / NOPAT (after-tax) | 0.57x |
| Net debt / operating income (pre-tax) | 0.46x |
| Share count CAGR (dilution) | 6.4% |
| Burning cash | no |
Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.
Bullet Takeaways
- Leonardo DRS sells the electronics inside defense platforms rather than the platforms themselves, and the FY2025 10-K describes a business built on tactical radars, infrared sensing, and naval electric power and propulsion, with revenue up 12.8% to $3,648 million.
- The balance sheet is not the risk: net debt of $137 million sits below half a year of operating income, and free cash flow ran near $301 million; the real strain is that the share count has grown about 6% a year, so per-share gains have to outrun a wider base.
- The next thing to watch is margin durability into the raised 2026 outlook of $3.9 billion to $3.975 billion in revenue and $1.26 to $1.30 in adjusted EPS, with germanium input costs the swing factor management has flagged.
Bull Case
Defense-electronics companies are unusually hard to value because their revenue lives inside other people's platforms. The order does not arrive when a ship or a radar is delivered; it arrives program by program, funded in slices as Congress appropriates, and the 10-K spells this out plainly: at the outset of a major program the contract is typically only partially funded, and additional funds are committed only as appropriations are made for future fiscal years. That structure hides the compounding. A single year of revenue understates the franchise, because the franchise is the accumulated position across dozens of multi-year programs. Leonardo DRS fits this pattern rather than breaking it, and the accumulation shows up in one number: funded backlog reached a record $4.7 billion exiting the first quarter, up 8% year over year, on a seventeenth consecutive quarter of booking at least a dollar of new orders for every dollar billed.
What DRS actually sells is the content that becomes indispensable once it is designed in. The Advanced Sensing and Computing segment, its larger half, designs, develops and manufactures the tactical radars and infrared sensing that ride on drones, vehicles, and force-protection systems. The Integrated Mission Systems segment supplies ship propulsion systems, motors and variable frequency drives, force protection systems, and transportation and logistics systems for the U.S. military and allied defense customers, and the filing calls DRS a leading provider of next-generation electrical power for naval platforms. That naval power position is the sharpest part of the bull case: electric propulsion is being designed into the Navy's newest submarines and surface combatants, and once a propulsion architecture is qualified onto a hull class, it is not casually re-competed. Revenue for the year grew $414 million on the strength of tactical radars, infrared, and electric power and propulsion. The moat here is qualification, not brand.
The near-term operating story is turning the right way. In the first quarter revenue rose 6% while adjusted EBITDA rose 28%, the kind of spread that comes from mix and cost, not volume alone, and management attributed ASC segment margin expansion to tactical radars and more favorable raw-material costs, germanium among them. The company then raised its full-year outlook, lifting revenue guidance to $3.9 billion to $3.975 billion and adjusted EPS to $1.26 to $1.30. On top of the base business sits real optionality: DRS is one of thirteen firms selected onto the Advanced Technology Support Program V, an indefinite-delivery vehicle with total potential value above $25 billion across the participants, spanning advanced sensing, computing, and integrated mission systems. That is a hunting license across exactly the two segments DRS already runs, and it is the mechanism by which today's record backlog can keep compounding.
Bear Case
The advantage that looks most durable here is also the one most exposed to erosion: DRS wins because its content is designed into platforms, but designed-in content is only defensible while the platform program keeps its funding, and the customer that funds it is essentially one buyer. The 10-K states it directly, that the U.S. government is the company's primary customer, and it pairs that with the appropriations mechanics: a major program is typically only partially funded at the outset, with additional funds committed only as Congress appropriates them in later years. Concentration on a single payer whose budget is set one fiscal year at a time is a structural ceiling on how defensible any single position can be. Funding for FY2026 arrived through the Consolidated Appropriations Act signed in February 2026, but the reliance on that annual cycle is the erosion vector, not the reassurance.
The second pressure point is where the money is actually made. DRS carries the risks the filing lists for a fixed-price contractor: inaccurate cost estimates, subcontractor and component failures, and program-execution slips can turn a booked backlog into a margin problem, and the 10-K notes program losses running to $59 million, $25 million, and $23 million in the disclosed years. The germanium story cuts both ways. Management credited recent margin gains partly to better germanium costing, which means margins are levered to a single scarce input the company does not control, and the improvement that helped this year can reverse. A moat that depends on favorable raw-material pricing is a moat renting its strength from the commodity market.
Then there is the price, which asks for far more than the operating record has shown. At today's level the market is paying roughly 42 times company-wide operating income, and only the forward-growth family of methods reaches that price; the asset-value and earnings-power lenses land near $12 a share, and the peer-multiple lens near $27 to $35, so the price sits close to four times where the static frames settle. Backed out, that price requires company-wide operating growth to hold at its self-funding ceiling for about nine years, and of the fast-growers in the comparison set only about 16% sustained that pace over a nine-year stretch. The near-term rate is within what DRS has recently delivered; the stretch is in how long it must persist. Compounding the demand, the share count has grown about 6% annually, so per-share value has to climb against a rising denominator. The bear case is not that the business is weak. It is that a single-customer, fixed-price, commodity-levered contractor is being priced as if durable compounding were already assured, and history says that assurance is the exception.
Valuation
Start with what the price is betting. At $46.08 the market is paying about 42 times company-wide operating income, and that multiple only makes sense if operating growth holds near its self-funding ceiling for roughly nine years. That is the whole claim in one sentence: not a high growth rate for a year or two, which DRS has recently delivered, but that rate sustained across nine years. In the comparison set, only about 16% of fast-growers held that pace that long.
The methods that triangulate value disagree in a revealing pattern. Group them into families and only one reaches the price. The asset-value lens, book value plus profitability, lands around $12 a share against a reported book value near $10.31; the earnings-power lens, capitalizing normalized operating profit and free cash flow, lands near $12 as well. Peer multiples land higher, roughly $27 to $35, reflecting a defense-electronics sector that trades richly. Only the forward-growth methods reach today's price, and they get there by crediting next-period growth the static frames structurally cannot price. One of them, the exit-multiple cash-flow model, only touches the price by holding today's EV/EBITDA flat for the life of the forecast. That spread between the value families near $12 and the price near $46 is the durability premium, stated as distance rather than as a target.
The filing-sourced inputs the price rests on are solid where they are supposed to be. FY2025 revenue grew $414 million, or 12.8%, to $3,648 million, and the funded backlog the 10-K defines as orders for products and services under existing contracts for which funding is appropriated or otherwise authorized reached a record $4.7 billion in the first quarter. Where the price outruns those inputs is not the near-term rate but its required persistence and the margin it assumes: the demonstrated trailing operating margin is near 9.9%, while the level embedded in the value band sits lower, so the premium is durability, not a margin the company has yet to reach.
Solvency is the floor under all of it, and it is a firm one. Net debt of $137 million is about a third of a year's operating income, the company is not burning cash, and free cash flow ran near $301 million. The one blemish is capital return in reverse: the share count has grown about 6% a year, so the balance sheet is sound but dilution is quietly working against per-share value. The recent analyst price targets clustering roughly $47 to $59 sit above the value families and near the forward methods; the street is crediting the same durable-compounding case the growth models require, which is precisely the assumption this framework isolates rather than endorses.
Catalysts
The first-quarter print set the near-term tone. Revenue rose 6% to $846 million with adjusted EBITDA up 28% to $105 million and adjusted diluted EPS of $0.26, and the company took the full-year outlook up, guiding to $3.9 billion to $3.975 billion in revenue, $515 million to $530 million in adjusted EBITDA, and $1.26 to $1.30 in adjusted EPS. Funded bookings of $885 million held the book-to-bill at 1.0x, the seventeenth straight quarter at or above that mark, and lifted funded backlog to a record $4.7 billion. The momentum management named was in electric power and propulsion, tactical radars, and force protection.
The larger forward item is the Advanced Technology Support Program V award, an indefinite-delivery, indefinite-quantity vehicle with total potential value above $25 billion across the thirteen selected firms, covering advanced sensing, computing, and integrated mission systems along with research in quantum computing, nanoelectronics, and advanced circuit design. It does not book revenue on its own; it is a position to compete for task orders in the exact areas DRS already serves, and its payoff shows up only as individual awards land.
Two swing factors run underneath the guidance. Germanium input costs, which management credited for part of this year's ASC margin gain, remain the item most capable of moving margins in either direction, and the near-term margin path is levered to how that supply behaves. The second is the annual defense appropriations cycle; FY2026 funding was signed in February 2026, and each future year's authorization is the gate through which the record backlog converts to revenue. Analyst sentiment coming out of the quarter was constructive, a Moderate Buy consensus with most ratings at Buy and price targets nudged into the roughly $47 to $59 range.
Peer Cohorts (Per Segment, With Filing Citations)
Advanced Sensing and Computing (ASC) (reported)
- TDY (TELEDYNE TECHNOLOGIES INC)
- (no filing in the citation store)
- HEI (HEICO CORPORATION)
- (no filing in the citation store)
- MRCY (MERCURY SYSTEMS, INC.)
- (no filing in the citation store)
- KTOS (Kratos Defense & Security Solutions, Inc.)
- (no filing in the citation store)
- CW (CURTISS-WRIGHT CORPORATION)
- (no filing in the citation store)
- LHX (L3HARRIS TECHNOLOGIES, INC.)
- (no filing in the citation store)
- BWXT (BWX Technologies Inc)
- (no filing in the citation store)
Integrated Mission Systems (IMS) (reported)
- HII (HUNTINGTON INGALLS INDUSTRIES, INC.)
- (no filing in the citation store)
- CW (CURTISS-WRIGHT CORPORATION)
- (no filing in the citation store)
- BWXT (BWX Technologies Inc)
- (no filing in the citation store)
- LHX (L3HARRIS TECHNOLOGIES, INC.)
- (no filing in the citation store)
- LDOS (Leidos Holdings, Inc.)
- (no filing in the citation store)
- GD (GENERAL DYNAMICS CORPORATION)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.
Sources
Q1 FY2026 earnings release, May 2026 · Q1 FY2026 earnings call, May 2026 · Department of Defense / company announcement, 2026 · sell-side price target range, 2026 · company / Department of Defense announcement, 2026 · sell-side ratings summary, 2026