On Wednesday, Baird raised its price target on shares of Leonardo DRS (NASDAQ: DRS) to $30.00, up from the previous target of $26.00. The firm has maintained an Outperform rating on the stock. This adjustment comes in the wake of Leonardo DRS's solid performance in the second quarter of 2024, which showcased a significant beat on both top-line revenue and earnings per share (EPS).
The company's recent financial results have prompted Baird to continue its bullish stance on Leonardo DRS. The defense contractor's second-quarter outcomes demonstrated robust growth, which is expected to persist, with clear visibility extending through 2026. This projection is underpinned by a strong revenue trajectory and an anticipated sequential improvement in profit margins.
Leonardo DRS's financial outlook is particularly promising, with the firm targeting approximately a 14% margin by 2026, a notable increase from the 11.5% margin reported in 2023. The company's performance is further bolstered by expectations of improved EBITDA margins for the Columbia class submarines, which are predicted to reach the mid-teens by 2025.
The company's backlog, which has been affected by less favorable pricing, is projected to be largely resolved by the end of 2024. This resolution is anticipated to contribute to a more favorable financial narrative for Leonardo DRS moving forward. Baird's revised price target reflects confidence in the company's strategic positioning and potential for continued financial growth.
In other recent news, Leonardo DRS reported significant growth in its second quarter of 2024, with a record-high backlog and a 20% YoY increase in organic revenue. The firm's earnings also saw a substantial rise, with adjusted EBITDA and adjusted net earnings increasing by 32% and 21% respectively. These robust results have led the company to revise its full-year guidance for revenue, adjusted EBITDA, and adjusted diluted EPS upwards.
The company's backlog reached a new high of $7.9 billion, marking an 82% YoY increase, driven by strong customer demand across segments, including advanced infrared sensing and network computing. CEO Bill Lynn also highlighted growing opportunities in power and propulsion, including electric power technology in new ship classes.
On the downside, Leonardo DRS acknowledged efficiency issues in the IMS division and persistent supply chain challenges in certain areas. However, the company remains optimistic about the defense budget and expects only a minor impact from administration changes. Recent developments also include the company's facility expansion in Charleston, South Carolina, and recognition with the Cogswell Award for industrial security commitment.
InvestingPro Insights
Leonardo DRS's recent financial achievements are mirrored in the real-time data from InvestingPro, which paints a picture of a company on the rise. With a market capitalization of $7.44 billion, the defense contractor's valuation reflects the positive sentiment surrounding its growth prospects. The company's price-to-earnings (P/E) ratio stands at 39.77, which adjusts to 37.74 based on the last twelve months as of Q2 2024, indicating a market expectation of continued earnings growth.
InvestingPro data also highlights a robust revenue growth of 15.81% in the last twelve months leading up to Q2 2024, with an even more impressive quarterly growth of 19.9% in Q2 2024. These figures underscore the company's strong performance and align with Baird's optimistic outlook. Additionally, the company's gross profit margin of 22.61% demonstrates its ability to maintain profitability amid expansion.
InvestingPro Tips suggest that while the PEG ratio of -0.68 may raise questions about the company's future growth relative to its earnings, the substantial EBITDA growth of 41.57% in the last twelve months as of Q2 2024 provides a counterbalance. This growth is a testament to the company's operational efficiency and strategic initiatives. For investors seeking more in-depth analysis, InvestingPro offers 15 additional tips that delve into the nuances of Leonardo DRS's financial health and market potential.
The company's stock performance has been stellar, with a year-to-date price total return of 39.72%, reflecting investor confidence. However, it's worth noting that InvestingPro's fair value estimate of $19.72 is below the current analyst targets, suggesting that investors should keep an eye on the company's ability to sustain its growth trajectory and maintain its competitive edge in the defense sector.
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