Leonardo DRS, Inc. (DRS): what the price assumes

In the published model solve dated 2026-Q2, anchored at $38.38, Leonardo DRS, Inc. (DRS) is priced for today's economics sustained for ~5.4 years. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-25.

Generated: 2026-08-30 · Exported: 2026-08-31 · Source: https://boothcheck.com/report/DRS

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 9.4% cost of capital; growth searched up to the 25% self-funding ceiling.

How unusual the bet is: within-range (limited comparison data)

Valuation X-Ray

The price is justified by relative-multiple and growth-DCF; asset-based/earnings-power land below the price.

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.

Families that justify the price: Relative, Growth Families that call it expensive: Asset, Earnings

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=15)

Economic-Unit Decomposition (Sum Of The Parts)

One or more material disclosed units has unresolved economics. Unknown/general is not evidence of homogeneity: segment SOTP is primary but incomplete, consolidated cash flow may remain only a secondary cross-check when every unit shares an enterprise basis, and one sector multiple or target margin is withheld.

No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.

Solvency

Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.

Bullet Takeaways

• Funded backlog reached a record 4.686 billion dollars at the end of March 2026, up 8% on the year, on top of the 8.4 billion dollars of total backlog and over 4.2 billion dollars of new orders the company booked across 2025.
• Margins are the whole argument: the sensing and computing segment lifted its operating margin to 7.2% from 4.9% in the first quarter, which still leaves the company earning an 8.7% trailing operating margin against 19.0% at TDY and 18.4% at CW.
• Second-quarter results are due July 30, 2026, and the number to watch is bookings, which fell to 885 million dollars from 991 million a year earlier as the sensing segment's book-to-bill dropped to 0.8x.

Bull Case

There is almost no debt here, and for a defense manufacturer running long-cycle production contracts that matters more than it sounds. Net debt is about 137 million dollars on a funded-debt basis, about 0.46 times operating profit; including capitalized leases the obligation is closer to 257 million. At the end of the first quarter the company held 328 million dollars of cash with no outstanding borrowings under its credit facility, having repaid and terminated its 2022 term loan in January 2026. A contractor with a clean balance sheet can bid on programs that require it to carry working capital for years before the milestones bill. That is not a financing detail. It is a competitive one.

Management is behaving like people who believe the order book. In the first quarter they paid a 0.09 dollar per share dividend, repurchased 91,238 shares, raised full-year guidance across revenue, adjusted EBITDA and earnings, and kept increasing investment in capacity. None of those is a large gesture on its own. Taken together with no borrowings drawn, they describe a company funding growth out of its own cash rather than out of the market's patience.

The order book is what they are funding against. The 10-K puts the year in one line: "Our operating results for the year ended December 31, 2025, are highlighted by our strong $8.4 billion of backlog and over $4.2 billion of new orders, demonstrating the strong customer demand for our mission critical technologies." Funded backlog then set a record of 4.686 billion dollars at the end of March, up 8% year over year. Backlog in this industry is not a forecast. It is work already awarded that Congress has appropriated money for.

Where that work sits is the part worth understanding. The company describes itself plainly: "DRS is a leading provider of next-generation electrical propulsion systems for the U.S. Navy." Electric power and propulsion for submarines and surface ships is a decade-long qualification problem, not a procurement decision that gets re-bid every year, and it was the driver management credited for both the Integrated Mission Systems bookings of 456 million dollars in the quarter, a book-to-bill of 1.5x, and the segment's margin expansion.

Then there is the actual operating story, which is margin. Revenue rose 12.8% in 2025 to 3,648 million dollars while gross profit rose 18.1% to 869 million. In the first quarter of 2026 the sensing and computing segment took its operating margin to 7.2% from 4.9% a year earlier, and the mission systems segment to 12.5% from 11.7%, with company adjusted EBITDA up 28% on revenue up 6%. Profit is growing at roughly four times the pace of sales.

That gap is where the cohort comparison becomes interesting rather than damning. At an 8.7% trailing operating margin the company sits below TDY at 19.0%, HEI at 23.5%, CW at 18.4% and BWXT at 12.3%. The bull case is not that those peers are wrong. It is that DRS is earning half the margin on similar work and has just demonstrated, two segments at once, that the gap is closeable. If the mix keeps shifting toward naval power and infrared sensing and away from lower-margin legacy programs, the arithmetic on the rest of the decade changes without a single new customer.

Bear Case

Leonardo DRS is not, in the ordinary sense, a company its public shareholders control. Its indirect majority stockholder is Leonardo S.p.A., and because the parent is foreign the business operates under a mitigation arrangement with the US government: "we are required to mitigate FOCI through our amended and restated proxy agreement". The 10-K states the consequence without softening it: "Conflicts of interest may arise between our majority stockholder and us." Minority holders own a claim on the cash flows and very little say over what happens to them. That is a permanent discount factor, and at 44 times operating income the price is not applying one.

The share count tells the same story from a different direction. It has risen about 6.4% a year over the four years to March 2026, most of that from the merger with RADA Electronic Industries rather than from steady dilution. Against that, the first-quarter buyback retired 91,238 shares for roughly 4 million dollars. That is a rounding error against a company worth 12.9 billion dollars. Capital return here is a gesture, not a mechanism, and the reason is straightforward: with a majority owner in place there is no path by which repurchases meaningfully change who controls the business.

Now the demand side, which is where the recent numbers have started to wobble. Bookings fell to 885 million dollars in the first quarter from 991 million a year earlier, and the sensing and computing segment, the larger of the two, booked 429 million against 669 million, a book-to-bill of 0.8x versus 1.3x. One quarter is not a trend. It is also the exact metric the whole thesis rests on, and it went the wrong way while the multiple did not.

Understand what backlog does and does not promise. The 10-K is explicit that "at the outset of a major program, the contract is typically only partially funded, and additional funds normally are committed to the contract by the procuring agency only as appropriations are made by Congress for future fiscal years". A substantial share of the total backlog is unfunded on the company's own definition, meaning the orders are firm but the money is not yet voted. The margin structure carries the same tension: "cost-type contracts have less financial risk associated with unanticipated cost growth but generally provide lower profit margins than fixed-price contracts". The company can have the safety or the margin, and the mix decides which.

The valuation consequence is arithmetic rather than opinion. At today's price the market pays roughly 44 times company-wide operating income, and the multiple sits at the very top of the peer distribution, well beyond the upper quartile. For that to work, operating profit has to grow at the fastest rate the business can self-fund and keep doing it for something like nine years. Roughly 15% of comparably fast-growing companies have sustained that pace over such a stretch. Meanwhile the company earns an 8.7% trailing operating margin against 19.0% at TDY, 18.4% at CW and 12.3% at BWXT. The price is paying a top-of-cohort multiple for a bottom-half margin, on the expectation that the margin travels. If it stalls anywhere short of that, there is no second lens holding the price up.

Valuation

Forty-four times operating income is the number to sit with, because everything else in this report is a way of asking whether it is defensible.

Take today's price and work backward. It requires operating profit to compound at the fastest pace the business can fund out of its own cash, and to keep doing so for roughly nine years. That is not a rate problem: the company has recently grown at about that pace. It is a duration problem. Of comparable fast-growing companies, only around 15% held the pace that long, and the multiple itself sits at the very top of the peer distribution, past the upper quartile rather than inside it.

The methods split cleanly on that question. Only the forward cash-flow approaches reach today's price, and the price still sits about 12% above their central estimate. Everything backward-looking is far below: about 75% above where peer multiples land, about 288% above the asset-value approaches, and about 303% above the earnings-power methods. That is not a report of a company being mildly expensive. It is the signature of a price paying for durable compounding that static frames structurally cannot price, The single method that does land on today's price arrives there on one assumption: that six years from now the market still pays the same multiple of cash earnings for this business as it pays this morning. Whether that is an assumption or an answer is the reader's call.

The operating evidence for the compounding case is real and recent. Revenue grew 12.8% in 2025 to 3,648 million dollars while gross profit grew 18.1% to 869 million, and the first quarter of 2026 delivered operating margins of 7.2% in sensing and computing against 4.9% a year earlier, and 12.5% in mission systems against 11.7%. Full-year guidance now calls for revenue of 3,900 to 3,975 million dollars and adjusted EBITDA of 515 to 530 million. The direction is not in dispute.

The cohort is what makes the multiple hard to place. DRS earns an 8.7% trailing operating margin. TDY earns 19.0%, HEI 23.5%, CW 18.4%, BWXT 12.3%, GD 10.2% and LHX 10.2%. Growth does not resolve it either: DRS grew 12.8% in 2025 against 21.4% at BWXT, 21.8% at KTOS and 18.8% at HEI. On both of the axes a premium usually rests on, this company is mid-pack, and the multiple is not.

The balance sheet neither justifies nor endangers the price; it simply removes one worry. Net debt of about 137 million dollars runs at about 0.46 times operating profit on a funded-debt basis, or nearer 257 million once capitalized leases are included, against 328 million dollars of cash and an undrawn credit facility. Free cash flow was negative 95 million dollars in the first quarter, which is normal for a business that bills on milestones rather than months. What the balance sheet cannot do is shorten the nine years.

Catalysts

Second-quarter results are scheduled for July 30, 2026, and the first quarter set a high bar. Reported on May 5, revenue rose 6% to 846 million dollars, net earnings 24% to 62 million, adjusted EBITDA 28% to 105 million, and diluted earnings per share to 0.23 dollars from 0.19. Management attributed the revenue growth to tactical radars, infrared sensing and electric power and propulsion, and the margin expansion largely to execution on Columbia Class work.

The company raised its full-year outlook alongside that print: revenue of 3,900 to 3,975 million dollars against a prior 3,850 to 3,950 million, adjusted EBITDA of 515 to 530 million against a prior 505 to 525 million, and adjusted diluted earnings per share of 1.26 to 1.30 dollars against a prior 1.20 to 1.26, on roughly 269 million diluted shares and an 18.5% tax rate. Bookings are the line that did not cooperate: 885 million dollars against 991 million a year earlier, with the sensing segment at a book-to-bill of 0.8x and mission systems at 1.5x. Funded backlog nonetheless set a record at 4.686 billion dollars.

Two dated items sit between the prints. On May 19, 2026 director Reuben Jeffery III bought 25,000 shares on the open market for approximately 1.07 million dollars, his first reported position in the company. And on July 15, 2026 the company was reported to have secured a blanket purchase agreement covering up to 50,000 thermal imaging cameras. The dividend remains 0.09 dollars a share quarterly, most recently paid June 2, 2026.

Peer Cohorts (Per Segment, With Filing Citations)

Advanced Sensing and Computing (ASC) (reported)

• TDY (TELEDYNE TECHNOLOGIES INC)
• FY2025 10-K: …one acquisition which will be included within the Instrumentation segment. See Note 18 for additional information. Our Business Segments Our businesses are aligned in four segments: Digital Imaging, Instrumentation, Aerospace and Defense Electronics, and Engineered Systems. Additional financial information about our…
• FY2025 10-K: …that comprise the Instrumentation segment. Marine Instrumentation We offer a variety of products designed for use in harsh underwater environments, instruments that measure currents and other physical properties in the water column, systems that create acoustic images of objects beneath the water's surface, including…
• HEI (HEICO CORPORATION)
• FY2025 10-K: …translated at period-end exchange rates, while revenue and expenses are translated using average exchange rates for the period. Unrealized translation gains or losses are reported as foreign currency translation adjustments through other comprehensive income or (loss) in shareholders' equity. Transaction gains or…
• FY2025 10-K: …misappropriation or obsolescence from occurring by developing new techniques and improving existing methods and processes, which we will continue on an ongoing basis as dictated by the technological needs of our business. We believe that, based on our competitive pricing, reputation for high quality, short lead time…
• MRCY (MERCURY SYSTEMS, INC.)
• FY2025 10-K: …also saves our customers valuable time and expense, as their initial costs to integrate modules and components typically far exceed the costs of the individual product procurement. This benefit continues over time because we are continually investing R&D into our products. This allows us to provide our customers the…
• FY2025 10-K: …risk while emphasizing commonality, interoperability and sustainability across platforms and domains. The Mercury Processing Platform is designed to meet the full range of requirements in compute-intensive, signal processing, image processing and command and control applications. To maintain a competitive advantage,…
• KTOS (Kratos Defense & Security Solutions, Inc.)
• FY2025 10-K: …estimates used in the preparation of our Consolidated Financial Statements. Revenue recognition. Effective January 1, 2018, we adopted the FASB ASU 2014-09, Revenue from Contracts with Customers , and the related amendments, which are codified into Accounting Standards Codification ("ASC") 606 ("ASC 606"). To…
• FY2025 10-K: …that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance…
• CW (CURTISS-WRIGHT CORPORATION)
• FY2025 10-K: …production orders to begin materializing by the middle of the next decade. General Industrial We derive revenue from our widely diversified offering to the general industrial market, which primarily consists of electronic sensors and control systems, electro-mechanical actuation, and surface treatment services. We…
• FY2025 10-K: …trends in our current and target markets; (b) develop and manufacture competitive products, systems, and services; (c) enhance our offerings by adding technological innovations that differentiate our products, systems, and services from those of our competitors; and (d) develop, manufacture, and bring those products,…
• LHX (L3HARRIS TECHNOLOGIES, INC.)
• FY2025 10-K: …Group . On May 31, 2024, we completed the divestiture of our Antenna disposal group, from our SAS segment, for cash proceeds of $ 170 million and a $ 25 million note receivable. Visual Information Solutions ("VIS"). During fiscal 2023, we completed the divestiture of VIS from our SAS segment , for net cash proceeds…
• FY2025 10-K: …radios, software, waveforms, satellite terminals and end-to-end battlefield systems. Broadband Communications: Design, manufacture and sustainment of resilient and secure communication solutions that include intelligence, reconnaissance and surveillance ("ISR") and tactical data links, software and integrated…
• BWXT (BWX Technologies Inc)
• FY2025 10-K: …In addition, this segment offers in-plant inspection, maintenance and modification services for nuclear steam generators, heat exchangers, reactors, fuel handling systems and balance of plant equipment, as well as specialized non-destructive examination and tooling/repair solutions. This segment also offers a broad…
• FY2025 10-K: …revenue at a point in time, and revenue on these contracts is recognized when control transfers to the customer. The majority of our revenue that is recognized at a point in time is related to parts and certain medical radioisotopes and radiopharmaceuticals in our Commercial Operations segment. For all contracts, if…

Integrated Mission Systems (IMS) (reported)

• HII (HUNTINGTON INGALLS INDUSTRIES, INC.)
• FY2025 10-K: …estimated using a most likely amount approach. Estimated revenues represent those amounts for which the Company believes a significant reversal of revenue is not probable. The Company recognizes revenues related to shipbuilding contracts as it satisfies the related performance obligations over time using a…
• FY2025 10-K: …the DoE's national security mission through the management and operation of its sites, as well as the safe cleanup of legacy waste across the country . Unmanned Systems Creates advanced unmanned systems for defense, marine research, and commercial applications. Serving customers in more than 30 countries, we provide…
• CW (CURTISS-WRIGHT CORPORATION)
• FY2025 10-K: …production orders to begin materializing by the middle of the next decade. General Industrial We derive revenue from our widely diversified offering to the general industrial market, which primarily consists of electronic sensors and control systems, electro-mechanical actuation, and surface treatment services. We…
• FY2025 10-K: …The commercial aerospace business is primarily impacted by OEM production rates of new aircraft, while the defense business is primarily impacted by government funding and spending on new programs, primarily driven by the U.S. Government. Certain industrial businesses within our Aerospace & Industrial segment are…
• BWXT (BWX Technologies Inc)
• FY2025 10-K: …with manufacturing integration. This segment's capabilities include: • steam generation and separation equipment design and development; • thermal-hydraulic design of reactor plant components; • in-plant inspection, maintenance and modification services; • nuclear component modification and replacement; • commercial…
• FY2025 10-K: …or disruptions may not be fully insured or indemnified by other means. Occurrence of any of these events could adversely affect our internal operations, the services we provide to customers, the value of our investment in research and development efforts and other intellectual property, our future financial results,…
• LHX (L3HARRIS TECHNOLOGIES, INC.)
• FY2025 10-K: …Group . On May 31, 2024, we completed the divestiture of our Antenna disposal group, from our SAS segment, for cash proceeds of $ 170 million and a $ 25 million note receivable. Visual Information Solutions ("VIS"). During fiscal 2023, we completed the divestiture of VIS from our SAS segment , for net cash proceeds…
• FY2025 10-K: …products. CS segment operating income increased in fiscal 2025 compared with fiscal 2024 primarily due to LHX NeXt driven cost savings realized during fiscal 2025 and the absence of a $24 million non-cash charge for impairment of other assets at Broadband Communications that occurred in fiscal 2024 related to the TDL…
• LDOS (Leidos Holdings, Inc.)
• FY2025 10-K: …more than 120 countries, including people scanners, computed tomography carry-on baggage scanners, checked baggage scanners, and explosive trace detectors. We are also the primary supplier to CBP and other 4 Leidos Holdings, Inc. Annual Report Table of Contents PART I international customers of mobile, non-intrusive…
• FY2025 10-K: …or networks or those of our customers, impair our ability to provide services to our customers and may jeopardize the security of data collected, stored, transmitted or otherwise processed through our information technology infrastructure, systems and networks. As a result, we could be exposed to claims, fines,…
• GD (GENERAL DYNAMICS CORPORATION)
• FY2025 10-K: …and technology spending in recent years and a shift to the rapid development of solutions to meet the ever-changing information-systems and mission-support needs of these customers. GDIT and Mission Systems share a common defense, intelligence and federal civilian customer base and, when appropriate, go to market…
• FY2025 10-K: …Powder propellant capacity; and continued advancement in solid rocket motor production. These initiatives will strengthen supply chain resiliency and support the full lifecycle of critical defense systems. Revenue for the Combat Systems segment was 17% of our consolidated revenue in 2025, 19% in 2024 and 20% in 2023.…

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.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• 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.