Leonardo DRS (DRS) is back in focus after nearly 300 IAM Local 2782 members ratified a new collective bargaining agreement, ending a lockout and setting fresh terms for wages, benefits, and paid time off.

The stock has been on a strong run, with a 30 day share price return of 18.39% and a year to date share price return of 36.26%. The 3 year total shareholder return of about 3x suggests longer term holders have already seen substantial gains, so recent labor resolution news is arriving as momentum has been building rather than starting from a standstill.

If this labor agreement has you thinking about other defense and infrastructure plays, it could be a useful moment to scan 33 power grid technology and infrastructure stocks

With Leonardo DRS trading at US$47.39 against an average analyst target of US$52.90 and recent returns already strong, the key question is whether the stock still trades at a discount or if markets are already pricing in future growth.

Most Popular Narrative: 10.4% Undervalued

On the most followed valuation view, Leonardo DRS looks underpriced, with a fair value of $52.90 against the last close at $47.39, and that gap is built on detailed earnings and margin assumptions.

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.

Want to see what is baked into that $52.90 figure? The narrative leans on steady revenue expansion, firmer margins, and a richer earnings multiple than the sector. Curious which assumptions really move the model and how the discount rate shapes the gap to today’s price? The full breakdown joins those pieces together.

At the core, the narrative uses a 7.9% discount rate to bring projected cash flows and earnings back to today, and then applies a premium P/E level to those future earnings to land on $52.90. It links that valuation to expectations for mid single digit revenue growth, margin improvement from current levels, and a P/E that sits above typical Aerospace & Defense benchmarks, all of which investors may want to test against their own views on defense spending and contract visibility.

Result: Fair Value of $52.90 (UNDERVALUED)

However, this story can change quickly if germanium supply issues squeeze margins in Advanced Sensing and Computing, or if concentrated U.S. contracts face budget pressure.

Another Way To Look At Valuation

The analyst narrative argues Leonardo DRS is about 10.4% undervalued at US$47.39, yet the current P/E of 43.6x is higher than the US Aerospace & Defense industry at 40.2x, the peer average at 31.9x, and a fair ratio of 28.7x. This points to valuation risk instead of a clear bargain. Which signal do you put more weight on?

Next Steps

Given the mix of optimism and caution running through this story, it makes sense to move quickly and stress test the data yourself, then weigh the 2 key rewards and 1 important warning sign

Looking for more investment ideas?

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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.