Leonardo DRS Downgraded by BofA as Upside is Already Priced In

Bank of America has downgraded Leonardo DRS (DRS) to Neutral, indicating that the stock’s current valuation already accounts for much of its potential upside.

Despite DRS’s strong performance, highlighted by an 82% year-over-year growth in backlog and the securing of its largest recompete win, BofA suggests that there are more compelling opportunities in the market. These opportunities include benefits associated with increased global defense spending, particularly in Navy-focused initiatives.

The analysts noted that while the new facility in South Carolina is expected to enhance profitability and efficiency, it will take time for those advantages to be realized. This facility, designed to support the Columbia-class submarine program, is set to begin operations in 2026.

BofA believes that without significant progress in the Columbia-class program or growth from other defense contracts, there is limited potential for further appreciation of the stock at its current trading multiples.

The bank also pointed out the AUKUS submarine partnership, which involves the cooperation of Australia, the US, and the UK to strengthen naval presence in the Indo-Pacific region. Although this partnership represents a considerable long-term opportunity for DRS, BofA feels that much of this potential has already been incorporated into the stock’s valuation.

The bank stated, “As with most government programs, timelines tend to be slow, and funding often lags initial investor excitement around announcements. We believe the upside from the AUKUS program has already been reflected in DRS’s multiple.”

BofA has increased its price target for DRS from $26 to $30, but further upside is seen as contingent on clear signs of margin growth, program expansion, and international opportunities.