Why This Might Still Be a Long-Term Winner

Leonardo DRS is one of those under-the-radar defense companies powering some of the most advanced military systems in the world. From sensors and tactical computing to ruggedized networking gear and combat vehicles, DRS builds much of the U.S. military’s digital backbone.

Shares are up more than 20% over the past year but have slipped nearly double digits since Q3 earnings. What happened, and could this dip be an opportunity for long-term investors?

Key Points

• Q3 revenue and earnings surged, but modest analyst downgrades triggered a pullback.

• Trading at nearly 40x earnings, DRS corrected as investors priced in perfection.

• A rising $8.9B backlog and counter-drone leadership support strong long-term upside.

Analyst Target Cuts Spark the Selloff

The recent decline wasn’t about weak results, it was about analyst reactions.

Following Q3 earnings, two Morgan Stanley analysts trimmed their price targets by $2 each, bringing them down to $45 and $47. While these weren’t negative calls, they signaled caution around valuation.

Even after the revisions, DRS still trades well below the average analysts of $48, implying about 31% upside from $36. And sentiment remains favorable, with seven buy ratings, two holds, and no sells. The pullback looks more like valuation recalibration than concern about fundamentals.

Strong Backlog + Healthier Balance Sheet

Leonardo’s Q3 results were solid. Revenue rose 18% year over year to $960 million. Management slightly raised full-year guidance to a range of $3.55–$3.6 billion.

The company also strengthened its balance sheet, reducing long-term debt from $340 million last year to $326 million this quarter.

Meanwhile, its backlog grew to $8.9 billion, providing strong visibility for future revenue growth.

Why Strong Numbers Still Led to a Selloff

Despite robust results, the selloff came down to expectations. The defense sector has rallied sharply as global tensions drive higher military spending, leaving investors expecting perfection.

DRS trades at nearly 40x earnings and operating cash flow, well above peers like General Dynamics or Northrop Grumman.

When results came in as merely strong rather than exceptional, the stock corrected. The drop appears to be a valuation reset, not a signal of weakening fundamentals.

The Growth Engine Is Advanced Military Tech

Leonardo’s real advantage lies in its technology. Beyond traditional hardware, the company is expanding into advanced defense systems, including electronic warfare and networked battle management.

One standout is its leadership in counter-drone technology, a rapidly growing field as unmanned systems reshape modern warfare.

In a recent Department of Defense assessment, Leonardo ranked first among counter-drone solution providers, a position that could lead to significant future contracts.

The Next 5 Years

Analysts expect earnings to grow at a 15% compound annual rate over the next three to five years. From the current $0.99 in EPS, that implies about $2 per share by 2030. With even a modest valuation multiple, the stock could double in that timeframe.

The company’s dividend potential also adds appeal. DRS initiated a dividend in 2025 with a modest 0.7% yield, but with earnings growth and declining debt, there’s room for meaningful dividend expansion ahead.

Healthy Pullback or Warning Sign

Leonardo DRS’s post-earnings slump looks more like a healthy pullback than a warning sign. The company continues to post strong growth, strengthen its balance sheet, and lead in key defense technologies.

With sustained government investment in advanced military hardware and rising demand for electronic systems, DRS remains well-positioned. For long-term investors, this could be an attractive opportunity to buy into a high-quality defense innovator at a more reasonable price.