Leonardo DRS (DRS) has attracted fresh attention after reporting first quarter 2026 results, with higher sales and net income year on year and an increase in its full year revenue guidance, alongside improving analyst sentiment.

At a share price of $42.87, Leonardo DRS has a 1-day share price return of 3.33% and a year to date share price return of 23.26%. Its 3-year total shareholder return of 187.09% points to strong longer term compounding even though the 30 day share price return is down 6.93%.

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With revenue and net income growth, a raised 2026 outlook, and a share price that sits below the average analyst target, the key question now is whether Leonardo DRS is still undervalued or if the market is already pricing in future growth.

Most Popular Narrative: 15.8% Undervalued

Against the current share price of $42.87, the most followed narrative puts fair value at $50.90, framing Leonardo DRS as modestly undervalued at today’s levels.

Global increases in digitization and modernization of military forces are benefiting DRS's proprietary solutions in network computing, electronic warfare, and electric propulsion, supporting higher average selling prices and expanded platform content, which is expected to enhance net margins and drive operational leverage.

The company's growing international exposure, particularly in response to NATO's elevated defense spending targets and geopolitical tensions, presents a catalyst for above-average international sales growth and greater revenue diversification, mitigating dependency on the U.S. budget cycle and increasing total addressable market.

Want to know what earnings path and margin profile sit behind that higher fair value, and how rich a future profit multiple this narrative assumes? The detailed model leans on steady growth, firmer profitability, and a valuation framework that is more demanding than the broader Aerospace & Defense group. The tension between that optimistic earnings curve and a higher required return is exactly what shapes the $50.90 figure.

Result: Fair Value of $50.90 (UNDERVALUED)

However, this story can change quickly if germanium supply constraints keep pressuring Advanced Sensing and Computing margins, or if major U.S. government programs are delayed or reshaped.

Another View: Valuation Tension

While the most popular narrative points to a fair value of $50.90 and labels Leonardo DRS as undervalued, the picture looks different when you focus on earnings multiples. The stock trades on a P/E of 39.4x, which is higher than both the estimated fair ratio of 29x and the US Aerospace & Defense industry at 35.8x, and well above the peer average of 25.8x.

That gap suggests the market already prices in a lot of future success. The real question for you is whether earnings quality and growth potential are strong enough to support this richer multiple, or if it simply raises valuation risk from here.

Next Steps

If the mixed messages on valuation and outlook leave you unsure, that is the point. It is worth moving quickly to see the full picture through 3 key rewards and 1 important warning sign.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.