Core Insights - Leonardo DRS, Inc. has signed a Memorandum of Intent with the Kingdom of Saudi Arabia's Ministry of Defense to explore opportunities in ground combat vehicles and dismounted forces [1] - The collaboration aligns with the United States' Strategic Defense Agreement with Saudi Arabia, supporting the Vision 2030 defense modernization roadmap [2] - Wall Street analysts remain positive on Leonardo DRS, with recent Buy ratings and a price target of $50 from Canaccord Genuity [3] Company Overview - Leonardo DRS, Inc. specializes in designing, developing, and manufacturing advanced defense technologies, including sensing, network computing, force protection, electric power, propulsion, and mission-critical systems for U.S. national security and allies [4]

Leonardo DRS Inc. (NASDAQ:DRS) is one of the best industrial stocks to buy according to Wall Street analysts. On December 5, Canaccord Genuity analyst Austin Moeller reiterated a Buy rating on the stock with a $50 price target. The positive stance also coincided with Truist Financial analyst Michael Ciarmoli reiterating that Leonardo DRS is a Buy. Is Leonardo DRS, Inc. (DRS) One of the Best Industrial Stocks to Buy According to Wall Street Analysts? The wave of bullish ratings comes after the company sig ...

Group 1 - Leonardo DRS, Inc. (NYSE: DRS) has experienced a decline of 22.3% since the stock was downgraded from Buy to Hold, underperforming the S&P 500's gain of 14.1% [1] - The decline in Leonardo DRS's stock price reflects both company-specific sentiment and broader market conditions [1] - The analyst, Dhierin-Perkash Bechai, specializes in the aerospace, defense, and airline sectors, providing insights into investment opportunities within these industries [1]

Core Insights - Leonardo DRS, Inc. and Hofmann Engineering Pty. Ltd. are forming a strategic partnership to explore opportunities in advanced allied navy propulsion needs and to enhance U.S. Navy ship and submarine production capacity [1] Company Overview - The collaboration is based on a recently signed Memorandum of Understanding, leveraging Leonardo DRS' extensive experience in design and development [1]

Revenue and Financial Performance - For the nine months ended September 30, 2025, approximately 81% of the company's business was derived from the Department of Defense (DoD), with revenues from the U.S. Navy and U.S. Army accounting for 38% and 36% of total revenues, respectively [110]. - Revenue for the nine months ended September 30, 2025, consisted of 94% product-related revenue, with 88% of total revenue coming from firm-fixed price contracts [136]. - Total revenues for the three months ended September 30, 2025, increased by $148 million, or 18.2%, to $960 million compared to the same period in 2024 [144]. - Total revenues for the three months ended September 30, 2025, increased by 18.2% to $960 million compared to $812 million for the same period in 2024 [182]. - Total revenues for the nine months ended September 30, 2025, increased by 14.9% to $2,588 million compared to $2,253 million in 2024 [182]. - International revenue accounted for approximately 9% of total revenue for the nine months ended September 30, 2025, down from 13% in 2024, primarily due to timing of sales [177]. Profitability and Earnings - Gross profit for the three months ended September 30, 2025, increased by $43 million, or 24.0%, to $222 million, resulting in a gross margin expansion of 110 basis points [149]. - Operating earnings for the three months ended September 30, 2025, increased by $18 million to $93 million, driven by gross profit impacts [155]. - Net earnings for the three months ended September 30, 2025, increased by $15 million to $72 million, attributed to higher earnings before taxes and changes in the effective tax rate [160]. - Total operating earnings for the three months ended September 30, 2025, rose by 24.0% to $93 million compared to $75 million in 2024 [182]. Backlog and Bookings - Total backlog increased by $645 million to $8,909 million as of September 30, 2025, from $8,264 million as of September 30, 2024 [162]. - Bookings for the three months ended September 30, 2025, increased to $1,307 million compared to $1,051 million for the same period in 2024, reflecting strong demand across segments [164]. - Bookings for the three months ended September 30, 2025, increased by 24.4% to $1,307 million from $1,051 million in 2024 [182]. Segment Performance - ASC segment revenue for the three months ended September 30, 2025, was $580 million, an increase of 8.8% from $533 million in 2024, driven by advanced sensing programs [183]. - IMS segment revenue for the three months ended September 30, 2025, increased by 34.4% to $383 million from $285 million in 2024, attributed to force protection programs [191]. - ASC segment operating margin for the three months ended September 30, 2025, decreased to 7.8% from 8.4% in 2024, attributed to increased R&D and G&A expenditures [187]. - IMS segment operating margin for the three months ended September 30, 2025, increased to 12.5% from 10.9% in 2024, driven by operational leverage from increased revenue [194]. Operational and Strategic Initiatives - The company is focused on continuous improvement through its APEX program, which aims to enhance efficiency and customer satisfaction [124]. - The company is exploring acquisitions to expand its portfolio and may consider divestitures of non-strategic businesses [179]. - The company has received orders from the U.S. and allies to provide equipment in support of military aid efforts due to ongoing global conflicts, including the situation in Ukraine [125]. Cash Flow and Financial Position - As of September 30, 2025, the company's cash balance was $309 million, a decrease from $598 million as of December 31, 2024 [198]. - Net cash used in operating activities decreased by $113 million to $59 million for the nine months ended September 30, 2025, compared to $172 million for the same period in 2024 [200]. - Net cash used in investing activities increased by $50 million to $105 million for the nine months ended September 30, 2025, primarily due to higher capital expenditures for a naval expansion project and a $15 million investment in Hoverfly Technologies [201]. - Net cash used in financing activities rose to $125 million for the nine months ended September 30, 2025, compared to $42 million for the same period in 2024, driven by dividends, employee tax payments, and share buybacks [202]. Risks and External Factors - The U.S. government shutdown on October 1, 2025, could lead to programmatic and funding impacts, including delayed billing and restrictions on new contract awards [128]. - Approximately 6% of the company's workforce is located in Israel, which poses potential risks due to ongoing regional conflicts, although there has been no material impact on operations to date [126]. - The company’s revenue is highly correlated to changes in U.S. government spending levels, particularly within the DoD, which has the largest defense budget globally [127]. - Inflationary pressures have affected supply chain costs, particularly in micro-electronics and commodities, potentially impacting future profitability [207]. - The company has limited exposure to equity risk, primarily holding overnight money market accounts [204]. - The outstanding balance of variable rate borrowings under the 2022 Term Loan A was $194 million as of September 30, 2025, with a potential annual interest expense fluctuation of approximately $1 million for a 0.5% change in interest rates [205]. - The company has limited foreign currency exposure, primarily related to immaterial receivables in Canadian dollars, with a 10% fluctuation in exchange rates not expected to materially impact financial statements [206].

Core Insights - Leonardo DRS stock declined 4.9% despite beating earnings forecasts, with actual earnings of $0.29 per share and sales of $960 million compared to analyst expectations of $0.28 per share and sales under $925 million [1][3][4] Financial Performance - The defense sector is experiencing significant growth, with Leonardo's sales increasing by 18% year over year in Q3, and the company booking $1.3 billion in new orders, resulting in a 1.4 book-to-bill ratio [3] - Leonardo's GAAP earnings grew 24% year over year to $0.26 per share, while the company generated $77 million in positive free cash flow during the quarter [4] - The company raised its revenue forecast for full-year 2025, predicting sales between $3.5 billion and $3.6 billion, and adjusted non-GAAP earnings guidance to between $1.07 and $1.12 per share [5] Valuation Considerations - Despite strong earnings growth, the stock is priced at a P/E ratio of 34, which may be considered expensive given the current valuation [6] - The Motley Fool Stock Advisor analyst team has identified other stocks they believe are better investment opportunities than Leonardo DRS [7][8]

Financial Data and Key Metrics Changes - The company reported a quarterly revenue growth of 18% year-over-year, totaling $960 million [20] - Adjusted EBITDA increased by 17% to $117 million, with a quarterly adjusted EBITDA margin of 12.2%, reflecting a slight contraction of 10 basis points from the prior year [21] - Net earnings for the third quarter were $72 million, with diluted EPS rising by 26% to $0.26 [22] - Free cash flow was reported at $77 million for the quarter, significantly up from the prior year [22] Business Line Data and Key Metrics Changes - The Integrated Mission Systems (IMS) segment saw a revenue increase of 34%, driven by strong contributions from Counter-UAS and electric power and propulsion programs [21] - The Advanced Solutions and Capabilities (ASC) segment demonstrated a healthy growth of 9%, attributed to naval network computing, advanced infrared sensing, and tactical radar programs [21] Market Data and Key Metrics Changes - The company secured $1.3 billion in bookings during the quarter, resulting in a book-to-bill ratio of 1.4, with a year-to-date book-to-bill ratio of 1.2 [5] - The total backlog reached a record $8.9 billion, up 8% year-over-year and 20% year-over-year for funded backlog [6][7] Company Strategy and Development Direction - The company is focused on areas of customer priority, including Counter-UAS, missile production, and sensing and electronics modernization, with strong alignment to defense funding trends [9] - The company is actively working on strengthening its germanium supply chain through recycling initiatives and strategic agreements with partners [10] Management's Comments on Operating Environment and Future Outlook - Management noted that while the operating environment presents both opportunities and challenges, they remain focused on execution discipline and maintaining investment for organic growth [8] - The company is optimistic about the future, with expectations for revenue growth of 10%-11% for the full year [7] Other Important Information - The company announced a leadership transition, with John Baylouny set to take over as CEO from Bill Lynn on January 1 [11][12] - The company is maintaining a balanced capital allocation strategy, focusing on M&A opportunities while also instituting a dividend [97] Q&A Session Summary Question: Update on IRAD spending trends - Management expects internal research and development investment to remain at current levels to maintain growth [29] Question: Foreign military sales activity - Management anticipates a ramp-up in foreign military sales opportunities, particularly in Counter-UAS and sensors [31] Question: Germanium pricing and supply - Management indicated progress in solidifying germanium supply and diversifying the supply base away from reliance on China [35] Question: Impact of the U.S. government shutdown - Management noted that while the shutdown has had a moderate impact, prolonged delays could affect awards and payments [42] Question: Counter-UAS program exposure - Approximately 20% of revenues are tied to Counter-UAS programs, with strong demand expected to continue [50] Question: Supply chain and inventory management - The company has a plan to bridge supply constraints through recycling and partnerships, ensuring robust supply into 2026 [94][95] Question: Capital allocation strategy - The company aims for a balanced capital allocation strategy, focusing on M&A opportunities while maintaining dividends and buybacks [97]

Financial Data and Key Metrics Changes - The company reported a quarterly revenue growth of 18% year-over-year, totaling $960 million [20] - Adjusted EBITDA increased by 17% to $117 million, with a quarterly adjusted EBITDA margin of 12.2%, reflecting a slight contraction of 10 basis points from the prior year [21] - Net earnings for the third quarter were $72 million, with diluted EPS rising by 24% to $0.26 [22] - Free cash flow was reported at $77 million for the quarter, significantly up from the prior year [22] Business Line Data and Key Metrics Changes - The Integrated Mission Systems (IMS) segment saw a revenue increase of 34%, driven by strong contributions from Counter-UAS and electric power and propulsion programs [20][21] - The Advanced Sensing and Computing (ASC) segment demonstrated a healthy growth of 9%, attributed to naval network computing, advanced infrared sensing, and tactical radar programs [21] Market Data and Key Metrics Changes - The company secured $1.3 billion in bookings during the quarter, resulting in a book-to-bill ratio of 1.4, with a year-to-date book-to-bill ratio of 1.2 [5] - The total backlog reached a record $8.9 billion, up 8% year-over-year and 20% year-over-year for funded backlog [6][5] Company Strategy and Development Direction - The company is focused on areas of customer priority, including Counter-UAS, shipbuilding throughput, missile production, and electronics modernization [9] - The company is actively working on strengthening its germanium supply chain through recycling initiatives and strategic agreements with partners [10] - The transition in leadership is expected to maintain the company's strategic focus on innovation and growth [12] Management's Comments on Operating Environment and Future Outlook - Management noted that the operating environment presents both opportunities and challenges, particularly with ongoing global defense investments [8] - The company remains optimistic about future growth, particularly in the Counter-UAS domain, and expects to see funding flow from the $150 billion defense budget [9] - The company is monitoring the impact of the U.S. government shutdown but has not yet seen significant effects on program execution [8][9] Other Important Information - The company announced a leadership transition, with John Baylouny succeeding Bill Lynn as CEO [11][12] - The company is maintaining a balanced capital allocation strategy, focusing on M&A opportunities while also instituting a dividend [97] Q&A Session Summary Question: How do you expect IRAD spending to trend? - Management expects internal research and development investment to remain at current levels to maintain growth [29] Question: Any updates on foreign military sales activity? - Management anticipates a ramp-up in foreign military sales opportunities, particularly in Counter-UAS and sensor demand [31] Question: Have germanium prices stabilized? - Management indicated progress in solidifying supply for germanium and diversifying the supply base [34][35] Question: Were there any unusually large orders this quarter? - There was increased demand for Counter-UAS and short-range air defense programs, contributing to strong bookings [40] Question: What risks does the extended U.S. government shutdown pose? - The impact is moderate currently, but prolonged shutdowns could lead to delays in awards and payments [42] Question: How do you measure the payback on R&D investments? - R&D investments are expected to open up adjacent markets and growth opportunities, particularly in Counter-UAS and unmanned systems [48] Question: What is the current exposure to Counter-UAS programs? - Approximately 20% of revenues are tied to force protection, primarily from short-range air defense and Counter-UAS programs [50] Question: What is the strategy regarding Hoverfly investment? - The investment aligns with the strategy to bring best-in-breed technologies for elevated sensing and targeting [60] Question: How is the company addressing germanium supply constraints? - The company is utilizing buffer stock and recycling initiatives while developing partnerships for long-term supply [58][59] Question: Any changes to capital allocation thoughts? - The company aims for a balanced capital allocation strategy, focusing on M&A opportunities while maintaining dividends [97]

Financial Data and Key Metrics Changes - The company reported a quarterly revenue growth of 18% year-over-year, totaling $960 million [20] - Adjusted EBITDA increased by 17% to $117 million, with a quarterly adjusted EBITDA margin of 12.2%, reflecting a slight margin contraction of 10 basis points from the prior year [21] - Net earnings for the third quarter were $72 million, with diluted EPS rising by 24% to $0.26 [22] - Free cash flow was $77 million for the quarter, significantly up from the prior year [22] Business Line Data and Key Metrics Changes - The Integrated Mission Systems (IMS) segment saw a revenue increase of 34%, driven by strong contributions from Counter-UAS and electric power and propulsion programs [21] - The Advanced Solutions and Capabilities (ASC) segment demonstrated a healthy growth of 9%, attributed to naval network computing, advanced infrared sensing, and tactical radar programs [21] Market Data and Key Metrics Changes - The company secured $1.3 billion in bookings during the quarter, resulting in a book-to-bill ratio of 1.4, with a year-to-date book-to-bill ratio of 1.2 [4] - The total backlog reached a record $8.9 billion, up 8% year-over-year, with funded backlog growing by 20% [4] Company Strategy and Development Direction - The company is focused on areas of customer priority, including Counter-UAS, shipbuilding throughput, missile production, and electronics modernization [8] - The company is actively working on strengthening its germanium supply chain through recycling initiatives and strategic agreements with partners [9] - The company is positioned to capture growth opportunities in electric power and propulsion technology for future platforms [19] Management's Comments on Operating Environment and Future Outlook - The management noted that the operating environment presents both opportunities and challenges, with continued growth in U.S. and allied defense investments [6] - The company remains optimistic about the future, expecting revenue growth of 10% to 11% for the full year [5] - Management expressed confidence in navigating the complexities of the dynamic market environment while maintaining investment for organic growth [5] Other Important Information - The company announced a leadership transition, with John Baylouny set to become the new CEO [11] - The company is maintaining a balanced capital allocation strategy, focusing on M&A opportunities while instituting a dividend and moderate buyback [156] Q&A Session Summary Question: How do we expect IRAD spending to trend? - Management expects internal research and development investment to remain around mid 3% of revenues to maintain growth [31][32] Question: Any updates on foreign military sales activity? - The company anticipates a ramp-up in foreign military sales opportunities, particularly in Counter-UAS and sensors [35] Question: Have germanium pricing and supply stabilized? - Management indicated progress in solidifying supply for 2026 and diversifying the supply base away from reliance on China [39] Question: What drove the increase in bookings this quarter? - The increase was primarily due to strong demand for Counter-UAS and short-range air defense programs, with a typical flow seen at the government fiscal year-end [52] Question: What is the outlook for the government shutdown's impact? - The impact is currently moderate, but prolonged shutdowns could lead to delays in awards and payments [54] Question: How does the company view the long-term growth prospects in propulsion and missile business? - The company sees significant long-term growth opportunities in propulsion systems for various ship classes and in the missile sector due to increasing demand for advanced sensors [102][106] Question: How does Sage Core fit into the U.S. Army's Next Generation C2 plans? - Sage Core is positioned as a critical component for enabling platforms to operate autonomously and make decisions at the edge of the battlefield [116]

Core Viewpoint - Leonardo DRS, Inc. reported quarterly earnings of $0.29 per share, exceeding the Zacks Consensus Estimate of $0.28 per share, and showing an increase from $0.24 per share a year ago, indicating a positive earnings surprise of +3.57% [1] Financial Performance - The company achieved revenues of $960 million for the quarter ended September 2025, surpassing the Zacks Consensus Estimate by 3.78%, and up from $812 million in the same quarter last year [2] - Over the last four quarters, Leonardo DRS has consistently exceeded consensus EPS estimates [2] Stock Performance - Leonardo DRS shares have increased approximately 24.4% since the beginning of the year, outperforming the S&P 500's gain of 17.2% [3] Future Outlook - The company's earnings outlook is crucial for investors, with current consensus EPS estimates at $0.40 for the coming quarter and $1.11 for the current fiscal year, alongside projected revenues of $1.03 billion and $3.59 billion respectively [7] - The estimate revisions trend for Leonardo DRS was mixed prior to the earnings release, resulting in a Zacks Rank 3 (Hold), suggesting the stock is expected to perform in line with the market in the near future [6] Industry Context - The Aerospace - Defense Equipment industry, to which Leonardo DRS belongs, is currently ranked in the bottom 41% of over 250 Zacks industries, indicating potential challenges ahead [8]