Leonardo DRS (DRS +5.26%) stock sank 4.9% through 11:10 a.m. ET Wednesday despite beating earnings forecasts this morning.
Heading into the Q3 report, analysts forecast the defense contractor would earn $0.28 per share, adjusted for one-time items, on sales of less than $925 million. Leonardo actually earned $0.29 per share, and sales were $960 million.
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Leonardo DRS Q3 earnings
The defense business is booming all around the world, with CEO Bill Lynn saying "broad-based customer demand was evident in our exceptional bookings and organic revenue growth." Leonardo's sales climbed 18% year over year in Q3, and the boom looks set to continue, with Leonardo noting it booked $1.3 billion in new orders to replace existing orders fulfilled and shipped -- a 1.4 book-to-bill ratio foreshadowing further sales growth ahead.
Turning to profits, earnings as calculated according to generally accepted accounting principles (GAAP) weren't quite as great as the $0.29 per share non-GAAP number noted above. Still, Leonardo grew profits 24% year over year, to $0.26 per share GAAP.
Even better, Leonardo generated $77 million in positive free cash flow in the quarter -- even more cash profit than it reported as net income.
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Key Data Points
Is Leonardo stock a buy?
Rounding out the good news, Leonardo raised the floor on its revenue forecast, predicting full-year 2025 sales will be at least $3.5 billion and potentially as much as $3.6 billion. Profits guidance also moved higher, with Leonardo predicting non-GAAP earnings between $1.07 and $1.12 per share.
Still, that works out to, at best, a P/E ratio of 34 on this $38 stock -- which seems kind of expensive, even with stellar 24% earnings growth. Despite the good quarter, I can't quite bring myself to recommend buying Leonardo stock at this price.
