DRS

We rate Leonardo DRS, Inc. (DRS) as a Hold with a composite score of 54.6/100 at a current price of $43.64. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in stability (72th percentile) and value (61th percentile), which together account for the majority of the composite score. All factors score above the 40th percentile, indicating no material weakness in the quantitative profile. We assign a Narrow Moat rating (60/100), Medium uncertainty, and Poor capital allocation.

Key items to watch: sustainability of the current growth rate. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Leonardo DRS, Inc. holds a top-quartile position (#0 of 50) within the Manufacturing sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 54.6/100 places it at rank #1323 in our full 7,333-stock universe. With a $12.1B market capitalization, Leonardo DRS, Inc. operates at meaningful scale within the Manufacturing sector, providing competitive advantages in distribution, procurement, and customer reach.

Revenue is growing at 27%, though momentum at the 54th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 23% (-19.6pp vs sector) narrow to operating margins of 9% (+7.4pp vs sector) and net margins of 6.8%, yielding a gross-to-net conversion rate of 30%. This conversion rate is typical for the sector, suggesting a standard cost structure without notable efficiency advantages or disadvantages.

At a current price of $43.64, Leonardo DRS, Inc. is trading near fair value based on current fundamentals. Our value factor score of 61/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. Valuation metrics are mixed, with no strong signal of mispricing in either direction.

The stock currently trades at a P/E of 45.7x (a 105% premium to the sector median of 22.3x), EV/EBITDA of 35.9x (at a premium), P/B of 4.0x, P/S of 3.1x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a Medium uncertainty rating to Leonardo DRS, Inc.. The stock presents a balanced risk profile: elevated valuation multiple (P/E 45.7x) that leaves limited margin for error. While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: elevated valuation multiple (P/E 45.7x) that leaves limited margin for error. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 72th percentile and quality factor at the 59th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: above-average stability (72th percentile) suggests predictable business dynamics. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate Leonardo DRS, Inc.'s capital allocation as Poor. Key concerns include suboptimal returns on capital. Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — Leonardo DRS, Inc. significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, Leonardo DRS, Inc. receives a Hold rating with a composite score of 54.6/100 (rank #1323 of 7,333). Our quantitative framework assigns a Narrow Moat (60/100, trend: stable), Medium uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 58/100.

Our analysis supports a neutral stance on Leonardo DRS, Inc.. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.