Is DRS a good stock to buy? We came across a bullish thesis on Leonardo DRS, Inc. on Danny’s Substack by Danny Green. In this article, we will summarize the bulls’ thesis on DRS. Leonardo DRS, Inc.’s share was trading at $44.24 as of April 20th. DRS’s trailing and forward P/E were 42.95 and 35.34, respectively according to Yahoo Finance.
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Leonardo DRS (DRS) operates in a highly specialized corner of defense electronics, focusing on mission-critical subsystems such as advanced infrared sensing, electric propulsion for submarines, and space-based tracking. The company’s economic moat is anchored in technology leadership, long-term regulatory and security clearances, and embedded program knowledge.
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Its infrared sensing suite, spanning ground, air, sea, and space, represents decades of classified R&D, while sole-source positions like the Columbia-class submarine propulsion systems create significant switching costs for the U.S. Navy. DRS also benefits from FOCI mitigation, allowing it to participate in sensitive U.S. programs that foreign-owned competitors cannot access. The company’s IP and proprietary technologies, including quantum-secure space radios and licensed quantum lasers, reinforce its structural advantage and enable premium pricing on differentiated programs.
DRS demonstrates strong operational leverage, maintaining 12.4% EBITDA margins despite a 40% increase in R&D investment, while the new Charleston naval propulsion facility enhances efficiency and delivery reliability. Free cash flow remains healthy, growing to $226 million in FY2025, even amid elevated capex for strategic facilities and IR&D expansion. Management, under CEO John Baylouny, emphasizes continuity, disciplined capital allocation, and long-term growth, with investments in the Charleston facility, counter-UAS systems, and space programs validating the strategy.
The defense electronics market offers favorable tailwinds, including rising U.S. defense budgets, space-based missile defense, naval modernization, and NATO-aligned demand. Risks include germanium supply constraints, concentrated U.S. government dependence, and Italian parent ownership. At a market cap of ~$9.7 billion, DRS trades at ~21.8x EV/EBITDA with modest FCF yield, reflecting growth potential. With mid-teens EBITDA margins achievable by 2027 and expanding program wins, DRS offers 15–20% upside while maintaining a structurally defensible position in a high-barrier-to-entry industry.
Previously, we covered a bullish thesis on Lockheed Martin Corporation (LMT) by Steve Wagner in April 2025, which highlighted the company’s strong backlog, diversified defense segments, strategic acquisitions like Amentum’s Rapid Solutions, and robust free cash flow supporting steady growth. LMT’s stock price has appreciated by approximately 24.52% since our coverage. Danny Green shares a similar view but emphasizes Leonardo DRS’s niche technology leadership, high switching costs, and structural advantages in classified defense programs.
Leonardo DRS, Inc. is not on our list of the 40 Most Popular Stocks Among Hedge Funds. As per our database, 35 hedge fund portfolios held DRS at the end of the fourth quarter which was 29 in the previous quarter. While we acknowledge the risk and potential of DRS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than DRS and that has 10,000% upside potential, check out our report about this cheapest AI stock.
Disclosure: None.
