Has Leonardo (BIT:LDO) Risen Too Far After Its 110% One Year Share Price Surge?

• If you are wondering whether Leonardo's current share price still offers value after a strong run, you are not alone. This article will break down what the market is paying for today and what that could mean for you.
• Leonardo's share price recently closed at €54.58, with returns of 11.0% over 7 days, 15.6% over 30 days, 6.6% year to date and 110.4% over the last year, while the 3 year and 5 year returns are very large multiples of the starting point.
• Recent market attention on the defence and aerospace sector, as well as ongoing geopolitical tensions and government spending priorities, has kept companies like Leonardo in focus. These themes form an important backdrop when you think about what is already reflected in the current price.
• On our valuation checks, Leonardo scores 3 out of 6. Next we will look at how different valuation methods line up on the stock, before finishing with a way of thinking about value that can give you a clearer long term picture.

Leonardo delivered 110.4% returns over the last year. See how this stacks up to the rest of the Aerospace & Defense industry.

Approach 1: Leonardo Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model takes the cash a company is expected to generate in the future, then discounts those amounts back to today to estimate what the entire business could be worth right now.

For Leonardo, the latest twelve month free cash flow is about €732.3 million. Analysts have provided detailed projections for the next few years, and these are extended out to 2035 using a 2 Stage Free Cash Flow to Equity model. On this basis, free cash flow in 2030 is projected at €1.8 billion, with each year between 2026 and 2035 contributing a discounted cash flow in the hundreds of millions of euros.

When those projected cash flows are all discounted back to today, the model arrives at an estimated intrinsic value of €35.15 per share. Compared with the recent share price of €54.58, the DCF output suggests Leonardo is around 55.3% above this modelled value, which points to a rich valuation on this specific cash flow view.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Leonardo may be overvalued by 55.3%. Discover 875 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Leonardo.

Approach 2: Leonardo Price vs Earnings

For a profitable business like Leonardo, the P/E ratio is a useful way to see what the market is paying for each euro of current earnings. Investors usually accept a higher P/E when they expect stronger growth or see the business as relatively resilient, and look for a lower P/E when growth or risk is more uncertain.

Leonardo currently trades on a P/E of 29.77x. That sits below the Aerospace & Defense industry average of 50.15x and the peer group average of 58.08x. On the surface, that points to a lower earnings multiple than many sector peers, although those simple comparisons do not adjust for Leonardo’s specific growth outlook, profitability or risk profile.

Simply Wall St’s Fair Ratio for Leonardo is 32.35x. This is a proprietary estimate of what a reasonable P/E could look like given factors such as earnings growth characteristics, industry, profit margins, market cap and company specific risks. Because it adjusts for these elements, the Fair Ratio can often be more informative than a straight comparison with industry or peer averages. With a Fair Ratio of 32.35x versus the current P/E of 29.77x, the shares screen as slightly undervalued on this metric.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1447 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Leonardo Narrative

Earlier we mentioned that there is an even better way to think about valuation, and on Simply Wall St this comes through Narratives, where you tell a clear story about Leonardo, link that story to your own revenue, earnings and margin estimates, turn those into a fair value, then see it side by side with the current price on the Community page so you can decide whether the gap between Fair Value and Price suggests it could be time to buy, sell or hold. Your view is automatically refreshed when news or earnings arrive, and there is room for very different perspectives. For example, one investor may use the higher analyst price target of €64.0 because they focus on defence demand and satellites, while another may lean toward the lower €35.3 view because they are more focused on Aerostructures risks and sector valuations.

Do you think there's more to the story for Leonardo? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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