Leonardo DRS cut at BofA as upside priced in

Bank of America downgraded Leonardo DRS (DRS) to Neutral in a note Tuesday, citing that the stock's current valuation already reflects much of the potential upside.

While DRS has shown solid performance, including an 82% year-over-year backlog growth and securing its largest recompete win, BofA believes "stronger opportunities in the market to capture near-term tailwinds associated with more robust global defense spend, and more specifically, stronger Navy-centric play."

Analysts at BofA said while DRS' new South Carolina facility will improve profitability and efficiency, it will take time for those benefits to materialize.

The facility, which focuses on supporting the Columbia-class submarine program, is expected to begin operations in 2026.

Until there is significant progress in the Columbia-class program or growth from other defense contracts, BofA sees limited room for further stock appreciation at current trading multiples.

BofA also highlighted the AUKUS submarine partnership, which involves cooperation between Australia, the US, and the UK to bolster naval presence in the Indo-Pacific.

While this agreement presents a significant long-term opportunity for DRS, BofA believes the stock's current valuation already factors in much of this potential.

"As with most government programs, timelines tend to be slow, and funding lags initial investor excitement around program announcements. We think upside from the AUKUS program has already been priced in to DRS's multiple," wrote the bank.

BofA raised its price target for the stock to $30, up from $26, but believes further upside will depend on clearer signs of margin growth, program expansion, and international opportunities.

Source: Investing.com