Nasdaq:DRS
Leonardo DRS, Inc.
A premier U.S.-based manufacturer of advanced aerospace materials and subsystems delivering critical components to commercial aviation and defense contractors.
Key Metrics
Investment Thesis
Bull Case
Investors should consider Leonardo DRS a compelling hold due to its dominant position in high-growth carbon fiber markets and the recurring revenue nature of its defense contracts. The company's ability to generate $366M in operating cash flow while investing heavily in R&D positions it for long-term margin expansion as aerospace production normalizes. Its strong balance sheet and proprietary technology create a durable competitive moat that protects market share against new entrants.
Bear Case
Despite strong revenue growth, the company faces headwinds from high capital intensity with $139M in capex and significant leverage hidden in accumulated other comprehensive losses of -$41M. Volatility in defense spending and commercial aviation recovery rates could disrupt the steady cash flow trajectory currently enjoyed by the firm. Additionally, the large goodwill balance of $1.24B creates potential impairment risks if key contracts are terminated or performance targets are missed.
About Leonardo DRS, Inc.
Leonardo DRS, Inc. is a leading U.S. provider of advanced materials, components, and subsystems primarily for the aerospace and defense sectors. The company leverages its deep technical expertise to manufacture specialized products like carbon fiber composites, fuel tanks, and structural parts for commercial aircraft and military platforms. Serving global markets, Leonardo DRS supports the full lifecycle of major aerospace programs with a focus on high-value, low-volume production.
Analysis
Management Discussion
Leonardo DRS reported a robust year with revenue climbing to $3.65B, reflecting strong demand for its advanced composite solutions across both commercial and defense portfolios. Operating leverage is evident as the company maintained healthy cash flow from operations of $366M while managing significant capital expenditures of $139M to sustain its manufacturing footprint. The balance sheet remains resilient with $647M in cash, providing ample flexibility for strategic acquisitions or weathering industry downturns.
Industry Overview
The aerospace and defense materials industry is characterized by high barriers to entry due to stringent regulatory certifications and the need for specialized manufacturing expertise. Consolidation is increasing as larger OEMs seek reliable, single-source suppliers capable of delivering complex composite structures on time. Companies with proprietary technologies like Leonardo DRS are well-positioned to capture value in this capital-intensive, long-cycle sector.
Financial Statements
Income Statement
Balance Sheet
Cash Flow
| Metric | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|
| Revenue | $2.69B | $2.83B | $3.23B | $3.65B |
| Cost of Revenue | $2.12B | $2.18B | $2.50B | $2.78B |
| Gross Profit | $575.0M | $648.0M | $736.0M | $869.0M |
| Operating Expenses | $14.0M | $417.0M | $443.0M | $521.0M |
| Operating Income | $561.0M | $231.0M | $293.0M | $348.0M |
| R&D | $58.0M | $82.0M | $92.0M | $129.0M |
| G&A | $357.0M | $384.0M | $414.0M | $497.0M |
| Stock-Based Comp | $5.0M | $17.0M | $22.0M | $32.0M |
| D&A | $65.0M | $85.0M | $91.0M | $93.0M |
| Depreciation | $55.0M | $63.0M | $69.0M | $71.0M |
| Amortization | $10.0M | $22.0M | $22.0M | $22.0M |
| Other OpEx | $-401.0M | $-49.0M | $-63.0M | $-105.0M |
| Non-Operating Income | $-36.0M | $-39.0M | $-29.0M | $-12.0M |
| Interest Expense | $34.0M | $36.0M | — | — |
| Pre-Tax Income | $525.0M | $192.0M | $264.0M | $336.0M |
| Income Tax | $120.0M | $24.0M | $51.0M | $58.0M |
| Continuing Ops | $405.0M | $168.0M | $213.0M | $278.0M |
| Discontinued Ops | $0 | $0 | $0 | $0 |
| Net Income | $405.0M | $168.0M | $213.0M | $278.0M |
| Minority Interest | $0 | $0 | $0 | $0 |
| Net to Common | $405.0M | $168.0M | $213.0M | $278.0M |
| Metric | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|
| Current Assets | $1.71B | $1.92B | $2.16B | $2.33B |
| Cash & Equivalents | $306.0M | $467.0M | $598.0M | $647.0M |
| Accounts Receivable | $166.0M | $151.0M | $253.0M | $334.0M |
| Inventory | $319.0M | $329.0M | $358.0M | $352.0M |
| Other Current Assets | $916.0M | $971.0M | $954.0M | $993.0M |
| Long-Term Assets | $1.97B | $2.00B | $2.02B | $2.16B |
| Goodwill | $1.24B | $1.24B | $1.24B | $1.24B |
| Operating Leases | $83.0M | $82.0M | $79.0M | $107.0M |
| Other LT Assets | $651.0M | $683.0M | $704.0M | $815.0M |
| Total Assets | $3.68B | $3.92B | $4.18B | $4.49B |
| Current Liabilities | $1.04B | $1.08B | $1.12B | $1.23B |
| Accounts Payable | $457.0M | $398.0M | $426.0M | $351.0M |
| Current Leases | $25.0M | $23.0M | $27.0M | $28.0M |
| Deferred Revenue | $233.0M | $335.0M | $399.0M | $585.0M |
| Other Current Liab | $327.0M | $322.0M | $264.0M | $267.0M |
| Long-Term Liabilities | $508.0M | $518.0M | $511.0M | $525.0M |
| LT Operating Leases | $68.0M | $68.0M | $66.0M | $95.0M |
| Other LT Liab | $440.0M | $450.0M | $445.0M | $430.0M |
| Total Liabilities | $1.55B | $1.60B | $1.63B | $1.76B |
| Shareholders' Equity | $2.13B | $2.33B | $2.56B | $2.73B |
| Paid-In Capital | $5.15B | $5.17B | $5.19B | $5.08B |
| Retained Earnings | $-2.97B | $-2.81B | $-2.59B | $-2.31B |
| AOCI | $-49.0M | $-47.0M | $-47.0M | $-41.0M |
| Total L&E | $3.68B | $3.92B | $4.18B | $4.49B |
| Metric | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|
| Net Income (CFO) | $405.0M | $168.0M | $213.0M | $278.0M |
| Non-Cash Adjustments | $-574.0M | $-11.0M | $-57.0M | $-89.0M |
| Working Capital Changes | $202.0M | $48.0M | $115.0M | $177.0M |
| Cash from Operations | $33.0M | $205.0M | $271.0M | $366.0M |
| Capital Expenditures | $65.0M | $60.0M | $85.0M | $139.0M |
| Cash from Investing | $436.0M | $-59.0M | $-84.0M | $-154.0M |
| Share Buybacks | — | — | — | $35.0M |
| Dividends Paid | $396.0M | $0 | $0 | — |
| Cash from Financing | $-403.0M | $15.0M | $-56.0M | $-163.0M |
| FX Effect | $0 | $0 | $0 | $0 |
| Net Change in Cash | $66.0M | $161.0M | $131.0M | $49.0M |
| Beginning Cash | $240.0M | $306.0M | $467.0M | $598.0M |
| Ending Cash | $306.0M | $467.0M | $598.0M | $647.0M |
Frequently Asked Questions
How does Leonardo DRS, Inc. make money?
The company's revenue is driven by three core segments: Materials & Composites (carbon fiber and resin systems), Subsystems (fuel tanks, landing gear, and structural assemblies), and Engine Systems (turbine blades and related hardware). These segments collectively serve major Original Equipment Manufacturers (OEMs) in the commercial aerospace, defense, and space markets.
What are the main risks for DRS?
1. Supply Chain Volatility: Reliance on specific resin suppliers and global logistics networks exposes the company to raw material price spikes and shipping disruptions. 2. Government Contract Dependency: A significant portion of revenue comes from defense contracts subject to congressional budget cuts, shifting priorities, or program cancellations. 3. Cyclical Aerospace Demand: Commercial aviation recovery can be uneven, leading to potential order delays that impact production schedules and working capital needs.
What is DRS's competitive advantage?
1. Proprietary Composite Technology: Decades of R&D have yielded a proprietary carbon fiber process that offers superior strength-to-weight ratios and cost efficiency compared to industry standards. 2. Deep Defense Relationships: Long-standing partnerships with key U.S. government contractors provide stable, high-margin contracts essential for aerospace stability. 3. Integrated Manufacturing Capabilities: The ability to vertically integrate from raw material conversion to final subsystem assembly allows for tighter quality control and faster time-to-market.
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Not financial advice. All content is for informational purposes only. Data may contain errors. Consult a qualified financial advisor before making investment decisions.