Leonardo S.p.A. trades lower as growth outlook shifts

Investing.com -- Leonardo S.p.A.’s stock traded over 2% lower on Wednesday following the company’s Industrial Plan update, which presented a mixed outlook on strategy, financial guidance, and capital allocation. 

Analysts at J.P. Morgan and UBS Global Research largely viewed the update as positive, though they noted some disappointments, particularly regarding the lack of a share buyback and delays in restructuring efforts.

A key highlight was the company’s decision to nearly double its dividend for 2024, increasing it from €0.28 to €0.52 per share. 

While no buyback was announced, analysts at UBS see the higher dividend as a stronger long-term commitment to capital returns, as buybacks are more prone to reversal. Leonardo also indicated plans to seek board approval for future share repurchases.

On the financial front, Leonardo raised its 2025-2028 sales projections by approximately 3-5% annually, driven by new joint ventures, space programs, and high-performance computing solutions. 

However, UBS analysts suggest this increase is due more to a reduction in contingency allowances rather than fundamental growth. 

Both brokerages pointed out that these forecasts are based on current defense spending plans, which could shift given recent geopolitical developments. 

Leonardo estimates that a 1 percentage point increase in European defense spending relative to GDP could boost its annual sales by €4-6 billion, though J.P. Morgan provides a more conservative estimate of €2-3 billion.

Despite higher revenue projections, profit expectations remain largely unchanged due to continued losses in the Aerostructures division. 

Leonardo is in talks to find a strategic partner for this struggling unit, but management now expects an agreement only by the end of 2025. The delay, along with the lack of a finalized deal to reduce exposure to Boeing’s B787 program, was seen as a disappointment. 

However, analysts noted that negotiations appear well advanced, with management emphasizing the importance of "investment sharing," which UBS interprets as a risk-sharing approach.

Beyond operational updates, Leonardo reaffirmed its capital allocation strategy, earmarking €500 million for acquisitions in cybersecurity and space technology. 

Analysts at both brokerages believe these moves could strengthen the company’s position in key growth areas.

While Leonardo’s stock has gained over 120% in the past year, Wednesday’s decline reflects investor caution around profitability concerns and restructuring delays