On Monday, investment firm Baird affirmed a positive outlook on defense contractor Leonardo DRS (NASDAQ: DRS), maintaining an Outperform rating with a $30.00 price target. The endorsement follows recent investor meetings with DRS management, which reinforced Baird's confidence in the company's growth trajectory.
Leonardo DRS, recognized for its diversified portfolio, is expected to benefit from ongoing modernization initiatives within the Department of Defense (DoD). The company's three-year projections underscore this potential, with anticipated growth of 4%-7%, an EBITDA margin expansion of 250 basis points, and a free cash flow (FCF) conversion rate of 80%-90%.
The firm is particularly well-positioned due to its exclusive role in the Columbia-class submarine program, which is forecasted to drive both growth and margin improvement through the end of the decade. This sole-source status on a key defense project underpins the company's robust financial outlook.
In other recent news, Leonardo DRS reported strong financial performance, with a 20% year-over-year increase in organic revenue in the second quarter of 2024. Adjusted EBITDA and adjusted net earnings also saw a significant rise of 32% and 21% respectively. This led to an upward revision of the company's full-year guidance for revenue, adjusted EBITDA, and adjusted diluted EPS.
The company has also been active in securing new contracts and delivering on existing ones. Notably, Leonardo DRS secured a $117 million production order for thermal weapon sights, a $49 million contract for additional Joint Assault Bridge systems, and a $52 million order for advanced Sniper Weapon Sights. These developments underscore the company's commitment to delivering advanced technology solutions.
In terms of analyst ratings, BofA Securities downgraded Leonardo DRS from Buy to Neutral, despite the company's performance exceeding expectations. However, the firm raised its price target for the defense contractor from $26.00 to $30.00. Baird also maintained an Outperform rating for Leonardo DRS, reflecting the company's strong financial performance.
Leonardo DRS has also made strides in its operations, including the early delivery of advanced C5I systems to the Australian Army and the expansion of its facility in South Carolina.
InvestingPro Insights
Leonardo DRS's financial metrics and market performance align closely with Baird's positive outlook. The company's revenue growth of 15.81% over the last twelve months as of Q2 2024, coupled with a robust 19.9% quarterly revenue growth, supports the projected 4%-7% growth mentioned in the article. Moreover, the EBITDA growth of 36.12% over the same period suggests that DRS is on track to achieve the anticipated EBITDA margin expansion.
InvestingPro Tips highlight that DRS has a high return on invested capital, which aligns with the company's strong position in defense contracts, particularly its exclusive role in the Columbia-class submarine program. Additionally, DRS has seen strong revenue growth recently, corroborating the article's emphasis on the company's growth trajectory.
The market seems to recognize DRS's potential, as evidenced by its impressive 66.89% price total return over the past year. With a current price at 93.37% of its 52-week high, there may still be room for growth, especially considering the $30 fair value based on analyst targets.
For investors seeking a deeper understanding of Leonardo DRS's potential, InvestingPro offers 13 additional tips that could provide valuable insights into the company's financial health and market position.
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