Fed governors may dissent against Powell amid Trump pressure - WSJ’s Timiraos
Investing.com -- Goldman Sachs has initiated coverage of Leonardo DRS (NASDAQ:DRS) with a “buy” rating, highlighting its strong positioning in the evolving U.S. defense landscape and expectations for growth above the sector average.
Among the factors behind the brokerage’s recommendation is the company’s diversified product mix, margin expansion potential, and alignment with new Department of Defense (DoD) procurement strategies.
Leonardo DRS is described as a platform-agnostic supplier of technology-enabled products that serve multiple programs of record.
The company plays a key role in the Columbia-class submarine program, a high-priority and well-funded effort by the U.S. Navy.
Goldman Sachs views this program as a margin expansion driver that supports the company’s medium-term fundamentals.
Broader efforts by the current administration to strengthen the U.S. shipbuilding industrial base could also provide further upside.
The company’s diversified exposure across defense categories helps mitigate risk from potential program-specific budget cuts, a concern amid growing scrutiny of federal deficits and total U.S. defense spending. In this context, Leonardo DRS is positioned to benefit from the DoD’s increasing focus on cost efficiency and technological adaptability.
Goldman Sachs emphasized the structural shift underway in U.S. defense procurement, where the Pentagon is placing more risk on contractors and favoring fixed-price contracts.
Unlike legacy prime contractors whose models often depend on cost-plus structures and long development cycles, DRS uses a more commercial approach.
This includes internal investment in research and development (R&D) and capital expenditures ahead of contract awards.
In terms of financial metrics, Leonardo DRS stands out among peers for its margin expansion profile.
The report identifies it as one of the top companies poised to grow both faster and more profitably than the broader defense sector.
Its adjusted EBITDA margin is projected to improve in the coming years, supported by scale, operational leverage, and favorable program exposure.
Leonardo DRS also maintains a favorable mix of contract types, with a higher share of fixed-price contracts relative to traditional defense primes. This structure aligns with the DoD’s goal of acquiring more capability for less cost.
While not as heavily weighted toward R&D spending as some peers, such as AeroVironment (NASDAQ:AVAV), DRS’s positioning on critical programs and its business model provide a more resilient foundation in an uncertain budget environment.