Leonardo DRS is near ATH when many peers are down by 40-70%. One report says it’s 9% undervalued. A P/E comparison says it’s expensive.

Many of the defense and space stock got cut almost in half this year, except one. Leonardo DRS is sitting 3% off its all-time high while Redwire, Voyager, Firefly, and Kratos are all down 40-73%. That gap made me want to read more about it.

On July 15, DRS announced a blanket purchase agreement to supply more than 50,000 Tenum Orbit thermal imaging cameras which was described as a major production milestone tied to unmanned systems and drone demand. That single announcement sent the stock up on a day the Nasdaq was down 1.4% and the S&P down 0.75%. The business behind it looks solid too, 2025 revenue was $3.65 billion, up 12.8%, earnings of $278 million, up 30.5%, and Q1 2026 revenue of $846 million which was better than the estimate, the management raised full year revenue guidance to $3.9-3.975 billion.

Here's the actual value question, because the two ways of looking at this stock disagree with each other. One model, a cash flow style fair value from Simply Wall St flags DRS as 9.1% undervalued at current $48.10 price. But look at it through a simple earnings multiple instead and the picture reverses, DRS trades at 44.3x P/E versus 38.1x for the broader US Aerospace & Defense industry, 32.2x for direct peers and an estimated fair multiple of 29.8x. That's a meaningful premium by any metric, the stock is pricing in a lot of continued contract wins that is still to happen.

That's a point to think and discuss about, do you trust a cash-flow-based intrinsic value model that says this is cheap, or a straightforward peer-multiple comparison that says it's expensive. Both are legitimate value investing tools, and they're pointing in opposite directions on the exact same stock, which doesn't happen often.

There are real risks worth considering, analysts flagged two specific ones, potential margin pressure from germanium supply issues (a material used in thermal imaging optics), and DRS's heavy reliance on large U.S. defense contracts, concentration risk can be seen two ways, it's why the funded backlog is so reassuring, but it also means DRS's earnings are tied tightly to defense budget decisions which are outside its control.

So, does a model saying this is 9% undervalued matter more than the fact it's trading at a real premium to its peers on P/E and does a $4.7 billion funded backlog justify DRS holding near ATH while the rest of the sector is down by a large margin.