Thermal camera contract puts Leonardo DRS stock in focus

Leonardo DRS (DRS) has drawn investor attention after announcing a contract to supply more than 50,000 Tenum Orbit thermal imaging cameras under a blanket purchase agreement.

The deal marks a production milestone for Leonardo DRS, tied to what the company describes as growing demand for compact thermal imaging systems across unmanned systems and other fast-evolving platforms.

Alongside the thermal camera agreement, Leonardo DRS has seen mixed momentum, with the share price up 27.57% year to date but recording a 1-year total shareholder return that declined 5.94%, while the 3-year total shareholder return is 161.43%.

If this thermal imaging contract has you thinking about other defense and sensing themes, it could be worth scanning 33 robotics and automation stocks

After a 27.57% gain year to date and a 1-year return that declined 5.94%, Leonardo DRS trades about 19% below the average analyst price target. Is this a cautious market misread or a fair discount to its prospects?

Most Popular Narrative: 16.1% Undervalued

With Leonardo DRS last closing at $44.37 versus a narrative fair value of $52.90, the prevailing view is that the stock trades at a meaningful discount, built on detailed expectations for contracts, margins and long term defense demand.

The company's strategic alignment with national priorities, including investments in naval modernization, next-generation air and missile defense (such as the Golden Dome initiative), and counter-UAS capabilities, sets the stage for premium contract awards and program expansions, benefiting both revenue and net margins over the next several years. 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.

Curious what kind of revenue trajectory, margin lift, and earnings multiple are baked into that $52.90 figure? The narrative leans on stronger defense tech demand and richer program economics, but the exact assumptions may surprise you.

Result: Fair Value of $52.90 (UNDERVALUED)

However, that fair value story for Leonardo DRS depends on key assumptions holding up, and germanium supply constraints or pressure on U.S. defense budgets could quickly undermine it.

Another View: Leonardo DRS Looks Expensive On Earnings

That 16.1% narrative undervaluation for Leonardo DRS sits awkwardly beside the earnings based view. On a P/E of 40.8x, the stock trades richer than the US Aerospace & Defense industry at 40x, its peer average of 31.6x, and above a fair ratio of 29.3x that the market could move toward over time. If sentiment cools, this premium could leave more room for compression than for further upside.

To see how this earnings based check fits into the bigger picture, including growth assumptions and balance sheet detail, it is worth going through the valuation breakdown in full See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

With mixed signals around value and growth in Leonardo DRS, it helps to move quickly and check the underlying data for yourself. You can pressure test the optimism by looking through the 2 key rewards.

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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.