Leonardo DRS (NASDAQ:DRS) shares fell more than 5% intra-day today after Bank of America downgraded the company to Neutral, citing that the stock’s current valuation already reflects much of its potential upside.
While DRS has delivered strong performance, including an 82% year-over-year growth in backlog and securing its largest recompete contract, BofA believes there are better near-term opportunities in the market, particularly in companies with a stronger focus on capitalizing on increased global defense spending and Navy-centric initiatives.
BofA acknowledged that DRS’ new South Carolina facility, which will support the Columbia-class submarine program, is expected to enhance profitability and efficiency, but the benefits are unlikely to be realized until operations begin in 2026.
Until significant progress is made in the Columbia-class program or growth materializes from other defense contracts, BofA sees limited room for further stock appreciation at the current valuation.
The analysts highlighted the AUKUS submarine partnership between Australia, the US, and the UK as a long-term growth opportunity for DRS, but BofA believes the current stock price already factors in much of this potential.