Leonardo DRS (DRS) is back in focus after its SGT STOUT M SHORAD system successfully countered small unmanned aerial threats in a U.S. Government test and the company signed a defense technology partnership with UAE based Space42.

The latest contract wins and test results come after a strong run in Leonardo DRS’s share price, with a year to date share price return of 28.41% and a three year total shareholder return of 168.12% signaling that momentum has been building over a multi year period despite a softer 1 day move and a modest weekly pullback.

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After a multi year run and fresh contract momentum, Leonardo DRS now sits at a different starting point for new buyers. Does the current valuation still leave enough upside to justify the risks being taken on?

Most Popular Narrative: 17.4% Undervalued

The most followed narrative for Leonardo DRS puts fair value at $54.10, above the last close of $44.66, which implies a meaningful valuation gap and places extra weight on the earnings path that underpins that figure.

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.

Curious what sits behind that $54.10 fair value for Leonardo DRS? The narrative focuses on steadier revenue gains, firmer margins, and a future earnings multiple that needs careful scrutiny.

Result: Fair Value of $54.10 (UNDERVALUED)

However, you also need to watch for pressure on margins from raw material constraints and any slowdown or disruption in key U.S. government contracts at Leonardo DRS.

Another View on Leonardo DRS Valuation

The earlier fair value of $54.10 paints Leonardo DRS as undervalued, but the current P/E of 37x tells a different story. It sits below the US Aerospace & Defense industry average of 38.9x, yet well above the peer average of 28.6x and the fair ratio of 26.1x. That gap suggests investors are already paying up for quality and may not have much room for disappointment if growth or margins fall short. Which valuation lens feels more realistic to you right now?

For a closer look at how these ratio gaps stack up against peers and sector norms, See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

If this mix of optimism and caution around Leonardo DRS leaves you undecided, consider acting while sentiment is fresh and weighing the potential upside for yourself. A useful next step is to review the 4 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.