Rising Geopolitical Tensions And Digitalization Will Drive Demand

AN
AnalystHighTarget
AnalystHighTarget
Not Invested
Consensus Narrative from 15 Analysts
Published
14 Jun 25
Updated
08 Aug 25
AnalystHighTarget's Fair Value
€64.00
29.0% undervalued intrinsic discount
08 Aug
€45.43
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1Y
109.8%
7D
-1.4%

Author's Valuation

€64.0

29.0% undervalued intrinsic discount

AnalystHighTarget Fair Value

Key Takeaways

  • Leonardo's diversified portfolio and global presence position it to outperform peers as defense budgets rise, enabling multi-year revenue visibility and growth.
  • Strategic joint ventures, digital initiatives, and expansion into high-margin tech will boost profitability, margin resilience, and operational efficiency beyond current expectations.
  • Exposure to low-margin civil aerospace, reliance on government defense budgets, integration risks, digital transformation challenges, and ESG scrutiny all threaten long-term growth and profitability.

Catalysts

About Leonardo
    An industrial and technological company, engages in the helicopters, defense electronics and security, cyber security and solutions, aircraft, aerostructures, and space sectors in Italy, the United Kingdom, rest of Europe, the United States of America, and internationally.
What are the underlying business or industry changes driving this perspective?
  • Analyst consensus acknowledges the order backlog and recent financials are strong, but the full potential is understated: Leonardo's upgraded 2025 guidance and order momentum, alongside an expected ramp of major joint ventures and integration of new businesses, positions the company for superlinear revenue growth and sustained operating leverage, driving long-term earnings acceleration beyond current expectations.
  • While the Aerostructures Division was flagged by analysts as a persistent risk, the progress toward a high-probability strategic JV, coupled with early recovery signals and rigorous operational improvements, point to a realistic pathway to not only address losses but unlock meaningful scale and margin upside sooner than the market anticipates, positively impacting group profitability.
  • Leonardo is uniquely positioned to benefit from the sustained surge in global defense spending, with its diversified product mix and exports to the US, Middle East, and Asia-Pacific placing it ahead of peers for capturing the multi-year upcycle in defense budgets, which will drive multi-year visibility in revenues.
  • The company's accelerated expansion in cybersecurity, space, and unmanned systems-underpinned by bolt-on acquisitions that fill key technology gaps-creates new high-margin revenue streams independent of the traditional defense cycle, structurally lifting group net margin and providing resilience against market cyclicality.
  • The proprietary "capacity boost" and industrial digitalization initiatives, targeting dramatic gains in efficiency, scalability, and supply chain resilience, are likely to deliver substantial improvements in both operating margins and free cash flow generation over the mid-to-long term, supporting further reinvestment, dividend growth, and deleveraging.

Leonardo Earnings and Revenue Growth

Leonardo Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • This narrative explores a more optimistic perspective on Leonardo compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
  • The bullish analysts are assuming Leonardo's revenue will grow by 10.4% annually over the next 3 years.
  • The bullish analysts assume that profit margins will increase from 5.6% today to 7.0% in 3 years time.
  • The bullish analysts expect earnings to reach €1.8 billion (and earnings per share of €3.04) by about August 2028, up from €1.0 billion today. The analysts are largely in agreement about this estimate.
  • In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 28.7x on those 2028 earnings, up from 25.7x today. This future PE is lower than the current PE for the GB Aerospace & Defense industry at 39.8x.
  • Analysts expect the number of shares outstanding to grow by 0.2% per year for the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 10.72%, as per the Simply Wall St company report.

Leonardo Future Earnings Per Share Growth

Leonardo Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • Sustained underperformance in the Aerostructures division, which is still lossmaking and exposed to the low-margin civil aerospace market, may continue to drag on overall company EBITDA margins and earnings, especially if restructuring or partnerships fail to deliver a timely turnaround.
  • Leonardo's ambitious growth plans rely heavily on government defense spending, yet growing secular pressure to reallocate budgets toward social initiatives and green projects could limit future order growth and reduce revenues.
  • Increasing reliance on complex international joint ventures and M&A (such as Iveco Defence and Rheinmetall partnerships) creates ongoing integration risks, with potential for elevated SG&A expenses and diluted net margins if synergies are not fully realized.
  • Implicit in Leonardo's capacity boost strategy is the need for a resilient, rapidly scalable supply chain and effective digital transformation; any inability to keep pace with competitors adopting AI, autonomous technologies, or advanced cyber solutions may result in lost market share and muted revenue growth over time.
  • Heightened ESG scrutiny on the defense sector and the possibility of tighter export controls in Europe and the US could impair Leonardo's access to financing, limit addressable export markets, and constrain new contract wins, adversely affecting long-term revenues and profitability.

Valuation

How have all the factors above been brought together to estimate a fair value?

  • The assumed bullish price target for Leonardo is €64.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Leonardo's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  • However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €64.0, and the most bearish reporting a price target of just €35.3.
  • In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be €25.2 billion, earnings will come to €1.8 billion, and it would be trading on a PE ratio of 28.7x, assuming you use a discount rate of 10.7%.
  • Given the current share price of €46.62, the bullish analyst price target of €64.0 is 27.2% higher.
  • We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

AnalystHighTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystHighTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystHighTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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