Leonardo's Strategic Buybacks and Credit Rating Upgrade Signal Undervaluation and Growth Potential

In an era defined by geopolitical volatility and surging demand for defense technology, Leonardo SpA (LDO.MI) has emerged as a compelling case study in value-driven investment. The Italian aerospace and defense giant's recent credit rating upgrade, strategic share repurchase program, and robust financial performance in Q3 2025 collectively signal a compelling opportunity for investors seeking exposure to a sector poised for long-term growth.

Credit Rating Upgrade: A Vote of Confidence in Financial Resilience

Leonardo's credit rating upgrade from Fitch in August 2025 underscores the company's improved financial stability and operational discipline. The rating agency cited Leonardo's cost-saving initiatives, including a 12.4% year-over-year revenue increase to €13.4 billion in Q3 2025, as a key driver of its upgraded outlook, according to Leonardo's Q3 2025 presentation slides. This upgrade not only reduces borrowing costs but also enhances investor confidence, positioning Leonardo to capitalize on its strategic alliances, such as its European space collaboration, as outlined in the same Leonardo's Q3 2025 presentation slides.

Strategic Buybacks: Reinforcing Shareholder Value

Leonardo's share repurchase program, initiated in October 2025, further reinforces its commitment to maximizing shareholder value. The company authorized a buyback of up to 600,000 ordinary shares (0.104% of its share capital) over 18 months, aligning with its Long-Term Incentive and Employee Share Ownership Plans, as detailed in the Leonardo press release. This move, coupled with its existing treasury shares (624,723 shares, or 0.1081% of capital), signals management's belief in the stock's undervaluation. By reducing the float and boosting earnings per share, the buyback program complements Leonardo's broader strategy to strengthen its balance sheet while investing in high-growth areas like AI-driven defense systems, as described in the same Leonardo press release.

Defense Tech Momentum: A Tailwind for Growth

Leonardo's defense technology segment is a critical growth engine, with Q3 2025 results highlighting its strategic focus on counter-UAS, electric propulsion, and advanced infrared sensing, as noted in the Leonardo DRS financial results. The company's U.S. subsidiary, Leonardo DRS, reported a 18% year-over-year revenue jump to $960 million, with adjusted EBITDA rising 17% to $117 million, as detailed in the Leonardo DRS financial results. These figures, combined with a record $8.9 billion backlog and a 1.4x book-to-bill ratio, demonstrate strong demand for Leonardo's cutting-edge solutions.

The broader defense tech sector is also experiencing a tailwind. According to a report by Financial Content, Palantir Technologies-a leader in AI-powered defense platforms-saw a 50% revenue surge in Q3 2025, driven by U.S. and international contracts, as reported in Palantir's AI Dominance Fuels Defense Tech Rally Amidst Q3 2025 Expectations. With 56 active global conflicts-the highest since World War II-governments are accelerating investments in AI and cybersecurity, a trend Leonardo is well-positioned to exploit through its partnerships and R&D pipeline, as discussed in Palantir's AI Dominance Fuels Defense Tech Rally Amidst Q3 2025 Expectations.

Valuation Metrics: A Case for Undervaluation

Despite Leonardo DRS's strong performance, its valuation metrics suggest untapped potential. The stock currently trades at a P/E ratio of 47.3x, above the industry average of 39.1x, according to a Yahoo Finance analysis. However, analysts project a fair value of $49, with the current price of $44.39 implying a 9% discount, as noted in a Yahoo Finance analysis. This discrepancy reflects optimism about Leonardo's ability to exceed 2025 guidance (revenue of $3.55–$3.6 billion) and sustain its 26% net earnings growth trajectory, as reported in a Baird Maritime analysis.

Strategic Positioning in a High-Growth Sector

Leonardo's dual focus on defense tech innovation and financial prudence sets it apart. Its 17,000 new STEM hires, as mentioned in the Leonardo press release, and $10 billion in U.S. defense contracts, as reported in the Leonardo DRS financial results, highlight its capacity to scale while maintaining profitability. Meanwhile, the company's 8% year-over-year backlog growth and 24.3% increase in new orders (€18 billion in Q3 2025), as described in the Leonardo press release, underscore its ability to convert geopolitical risks into revenue opportunities.

Conclusion: A Value-Driven Investment Thesis

Leonardo's credit rating upgrade, strategic buybacks, and robust defense tech performance create a compelling case for value-driven investors. While its P/E ratio appears elevated, the company's strong cash flow generation ($77 million in free cash flow, Q3 2025), as reported in a Baird Maritime analysis, and alignment with AI-driven defense trends justify its premium. As global tensions persist, Leonardo's disciplined execution and innovation pipeline position it to outperform peers-a rare combination in today's market.