Leonardo DRS Plunges 4.95% Amid Earnings Optimism: What's Fueling the Selloff?

Summary
• Leonardo DRS (DRS) slumps 4.95% to $38.19, erasing $2.05 from its value in under 4 hours.
• Q3 earnings beat estimates by 3.57%, with revenue surging 18% to $960M, yet shares trade below $40 for first time in weeks.
• Technicals signal bearish momentum: RSI at 26.75, MACD -0.74, and price testing lower Bollinger Band at $37.80.
• Sector peers like Lockheed Martin (LMT) rally 0.39%, highlighting DRS’s divergence despite strong fundamentals. The selloff defies earnings optimism, sparking questions about near-term catalysts.

Earnings Optimism vs. Technical Bearishness: A Clash of Narratives
Leonardo DRS’s 4.95% intraday drop reflects a tug-of-war between bullish fundamentals and bearish technicals. While Q3 results—$0.29 EPS (beating by 3.57%) and $960M revenue (up 18% YoY)—cemented its status as a top-performing defense stock, technical indicators suggest short-term profit-taking. The stock’s 52-week high of $49.31 remains distant, and its 30-day moving average at $42.51 acts as a psychological barrier. The RSI at 26.75 (oversold territory) and MACD (-0.74) signal exhaustion in the rally, while the price’s proximity to the lower Bollinger Band ($37.80) hints at a potential rebound. However, the 200-day MA at $39.54 and 200D support/resistance ($41.39–$41.78) remain untested, suggesting volatility may persist.

Defense Sector Resilience as LMT Rallies
The Aerospace & Defense sector, led by Lockheed Martin’s 0.39% gain, contrasts with DRS’s selloff. While DRS’s 2025 revenue guidance ($3.55–3.6B) and $8.9B backlog underscore its strength, broader sector dynamics—such as Boeing’s cash burn reduction and Honeywell’s stock surge—highlight divergent investor sentiment. DRS’s Zacks Rank 3 (Hold) and the industry’s bottom-41% ranking suggest caution, as defense stocks face mixed earnings revisions. The sector’s 17.2% YTD gain lags DRS’s 24.4%, but recent volatility in peers like AerSale (ASLE) may amplify DRS’s near-term uncertainty.

Bearish Setup: Puts and ETFs for a Volatile Defense Sector
• Technical Indicators:
- 200-day average: $39.54 (above current price)
- RSI: 26.75 (oversold)
- MACD: -0.74 (bearish)
- Bollinger Bands: $46.78 (upper), $42.29 (middle), $37.80 (lower)
- 30D/100D/200D MAs: $42.51, $43.48, $39.54 (bearish convergence)
• Trading Setup: Key support at $37.80 (lower Bollinger Band) and $39.83 (30D support). A break below $37.80 could trigger a test of the 52W low ($28.17). Short-term volatility is likely, with the RSI suggesting a potential rebound.
• Options Picks:
- DRS20251121P38 (Put, $38 strike, Nov 21 expiry):
- IV: 36.95% (moderate)
- LVR: 28.67% (high leverage)
- Delta: -0.4569 (moderate sensitivity)
- Theta: -0.0035 (low time decay)
- Gamma: 0.1097 (high sensitivity to price swings)
- Turnover: 1,138 (liquid)
- Payoff: At 5% downside (ST = $36.28), payoff = $1.72 per contract. This put offers high gamma and leverage for a bearish move.
- DRS20251121P36 (Put, $36 strike, Nov 21 expiry):
- IV: 40.39% (moderate)
- LVR: 56.92% (high leverage)
- Delta: -0.2645 (moderate sensitivity)
- Theta: -0.0118 (moderate time decay)
- Gamma: 0.0828 (high sensitivity)
- Turnover: 2,367 (liquid)
- Payoff: At 5% downside (ST = $36.28), payoff = $0.28 per contract. This put balances leverage and liquidity for a deeper bearish scenario.
• Hook: Aggressive bears may consider DRS20251121P38 into a breakdown below $37.80.

Backtest Leonardo DRS Stock Performance
Below is the interactive event-study module. Key take-aways: after a −5 % intraday plunge, DRS historically rebounded quickly—median excess return turned positive within two trading days and reached ≈8 % by the 20-day mark, with a >70 % win rate through the first month.Feel free to explore the chart and statistics in the module, and let me know if you’d like to drill down further (e.g., different holding windows, risk controls, or comparison against sector peers).

Navigating the Crossroads: DRS at a Pivotal Technical and Earnings Inflection
Leonardo DRS’s 4.95% selloff underscores a critical juncture where strong earnings fundamentals clash with bearish technicals. While the stock’s 24.4% YTD gain and $8.9B backlog signal long-term resilience, near-term volatility is likely as the RSI (26.75) and MACD (-0.74) suggest a potential rebound. Investors should monitor the 200-day MA ($39.54) and 30D support ($39.83) for directional clues. The sector’s mixed outlook—Lockheed Martin’s 0.39% gain versus DRS’s selloff—adds complexity. A breakdown below $37.80 could trigger a test of the 52W low ($28.17), while a rebound above $40.16 may reignite the rally. Action: Watch for $37.80 breakdown or earnings call commentary on 2025 guidance revisions.