Leidos
LDOS
$133.78
-3.88%
Leidos Holdings, Inc. is a technology, engineering, and science company that provides services and solutions in defense, intelligence, civil, and health markets, primarily to U.S. government agencies such as the DoD, Intelligence Community, DHS, FAA, and VA. As a leading IT services provider in the federal sector, Leidos is distinguished by its scale (47,000 employees) and its focus on mission-critical national security and health programs. The current investor narrative centers on the company's record profits and robust demand for its digital modernization and defense solutions, but this is tempered by concerns over government budget uncertainties, a potential shutdown, and a cautious near-term outlook that have pressured the stock despite strong operational performance.…
LDOS
Leidos
$133.78
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Investment Opinion: Should I buy LDOS Today?
Based on the analysis, LDOS is rated a 'Buy' with a thesis that its attractive valuation (forward PE of 11.0x) and strong cash flow generation ($1.86B TTM) provide a margin of safety, while the consensus analyst target of $156.60 implies 11.3% upside. The stock is undervalued relative to its growth prospects, as indicated by a PEG of 0.82, and the recent technical rebound suggests improving sentiment.
Supporting evidence includes a trailing PE of 16.35x, which is below the S&P 500's 22x, and a price-to-sales ratio of 1.41x versus the industry average of 2.5x. Revenue growth of 3.65% YoY is modest but positive, and the company maintains a strong ROE of 29.6%. Free cash flow of $1.86B covers debt obligations and supports a dividend yield of 0.87%. The consensus rating is 'Buy' with a mean score of 2.35, and the average target price of $156.60 is above the current price.
The biggest risks are government shutdowns, which could disrupt revenue, and the decelerating growth trend. If revenue growth falls below 2% or the stock breaks below $125, the rating would be downgraded to 'Hold'. Conversely, if growth reaccelerates above 5% and the stock holds above $146, it could be upgraded to 'Strong Buy'. Overall, the stock is undervalued relative to its history and peers, offering a favorable risk/reward for long-term investors.
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LDOS 12-Month Price Forecast
The AI assessment leans bullish due to the attractive valuation and strong cash flow, but confidence is medium given the decelerating growth and government shutdown risks. The stock's forward PE of 11.0x is well below the market, and the PEG of 0.82 suggests undervaluation. However, the revenue growth slowdown to 3.65% and the wide analyst target range introduce uncertainty. If the company can stabilize growth and avoid shutdowns, the stock could re-rate higher. A downgrade to neutral would occur if revenue growth falls below 2% or the stock breaks below $125.
Wall Street consensus
Most Wall Street analysts maintain a constructive view on Leidos's 12-month outlook, with a consensus price target around $156.60 and implied upside of +17.1% versus the current price.
Average Target
$156.60
0 analysts
Implied Upside
+17.1%
vs. current price
Analyst Count
—
covering this stock
Price Range
$125 - $225
Analyst target range
Leidos is covered by 15 analysts, with a consensus recommendation of 'Buy' and a mean rating of 2.35 (where 1 is Strong Buy and 5 is Sell). The average price target is $156.60, which implies an upside of 11.3% from the current price of $140.66. The distribution of ratings includes 5 Buy, 5 Hold, and 5 Neutral, indicating a balanced but slightly bullish sentiment. Recent actions show a mix of ratings, with Goldman Sachs maintaining Neutral, JP Morgan Overweight, and Truist Securities Buy, while B of A Securities downgraded from Buy to Neutral in June, and Jefferies moved from Buy to Hold in June. This mixed sentiment reflects the uncertainty around government spending and the company's near-term outlook.
The target price range spans from a low of $125.00 to a high of $225.00, representing a wide spread of $100, which indicates significant uncertainty among analysts about Leidos's future prospects. The low target of $125.00 implies a downside of 11.1% from the current price, likely pricing in continued budget pressures and potential revenue declines. The high target of $225.00 implies an upside of 60.0%, suggesting that some analysts see substantial growth potential, possibly from new defense contracts or digital transformation initiatives. The wide range reflects the divergent views on the impact of government shutdown risks and the pace of defense modernization. The recent downgrades by B of A and Jefferies, along with the cautious guidance from the company, have contributed to the bearish sentiment, but the overall consensus remains positive, with the average target above the current price.
Bulls vs Bears: LDOS Investment Factors
Leidos presents a mixed picture: strong profitability, attractive valuation, and a recent technical rebound are countered by decelerating revenue growth, government shutdown risks, and a high debt load. The bull case is supported by a PEG of 0.82 and a consensus Buy rating, while the bear case is anchored on budget uncertainties and a 22.4% one-year decline. Currently, the evidence slightly favors the bulls given the valuation discount and cash flow strength, but the key tension is whether revenue growth can reaccelerate. If government spending stabilizes and growth picks up, the stock could re-rate higher; if not, the low end of analyst targets may be tested.
Bullish
- Strong profitability and cash flow: Leidos generated $1.86 billion in free cash flow over the trailing twelve months, with a net margin of 7.5% in Q1 FY2026. This robust cash generation supports debt servicing, dividends, and growth investments, providing a solid financial foundation.
- Attractive valuation with PEG below 1: The stock trades at a forward PE of 11.0x and a PEG ratio of 0.82, indicating it is undervalued relative to its expected growth. This is a 50% discount to the S&P 500's forward PE of 22x, suggesting potential upside if growth materializes.
- High ROE and efficient asset use: Leidos boasts a return on equity of 29.6% and a return on assets of 8.9%, reflecting strong operational efficiency. This is well above industry averages and indicates management's ability to generate profits from shareholder equity.
- Consensus Buy rating with upside: Analysts have a consensus 'Buy' rating with an average price target of $156.60, implying an 11.3% upside from the current price of $140.66. Even the low target of $125.00 is only 11.1% below current levels, limiting downside risk.
Bearish
- Revenue growth decelerating: Q1 FY2026 revenue growth slowed to 3.65% YoY, down from 5.1% in Q4 FY2025 and 6.9% in Q3 FY2025. This deceleration reflects budget uncertainties and a mature federal IT market, which could persist.
- Government shutdown risk: Recent news highlights that a government shutdown and weak outlook overshadowed record profits, causing the stock to slide 6%. Leidos derives most of its revenue from U.S. government contracts, making it highly sensitive to budget disruptions.
- High debt-to-equity ratio: Leidos has a debt-to-equity ratio of 1.21, which is moderate but elevated for a services company. While cash flow covers interest, rising rates or a downturn could strain the balance sheet.
- Wide analyst target range: Analyst price targets range from $125.00 to $225.00, a spread of $100, indicating significant uncertainty. Recent downgrades by B of A and Jefferies reflect bearish sentiment on near-term prospects.
LDOS Technical Analysis
Leidos is in a pronounced downtrend over the past year, with the stock down 22.4% over the last 12 months, while the S&P 500 gained 18.6% over the same period. The current price of $140.66 sits at 40% of the 52-week range (between $98.86 low and $205.77 high), indicating the stock is closer to its lows than its highs, reflecting persistent selling pressure and a bearish long-term structure. This positioning suggests the market is pricing in significant headwinds, but also that the stock may be approaching oversold conditions, warranting a watch for potential reversal signals.
Short-term momentum has turned sharply positive, with the stock up 23.0% over the past month and 10.1% over the past three months, a stark contrast to the 1-year decline. This recent surge, which began in early August, has seen the price rally from $118.72 to $140.66, a move of 18.5% in just a few weeks, and has outpaced the S&P 500's 5.5% monthly gain, giving a relative strength of 17.5% over the month. This divergence between the short-term recovery and the longer-term downtrend could signal a potential trend reversal, but it may also be a bear market rally, especially given the stock's high beta of 0.546, which indicates lower volatility than the market, but the sharp moves suggest sentiment is shifting.
Key technical levels are the 52-week low of $98.86, which serves as major support, and the 52-week high of $205.77, which is a distant resistance. A breakout above the recent high of $146.31 (from August 19) would signal further upside, while a drop below the $100 psychological level could trigger renewed selling. The stock's beta of 0.546 implies it is less volatile than the market, but the recent 23% monthly swing shows that volatility can spike, and the maximum drawdown of -49.9% over the past year highlights the risk. Investors should watch for a close above $146 to confirm the recovery, while a fall below $130 would negate the recent bullish momentum.
Beta
0.55
0.55x market volatility
Max Drawdown
-49.9%
Largest decline past year
52-Week Range
$99-$206
Price range past year
Annual Return
-26.0%
Cumulative gain past year
| Period | LDOS Return | S&P 500 |
|---|---|---|
| 1m | +12.7% | +1.0% |
| 3m | +7.4% | +1.1% |
| 6m | -24.8% | +13.8% |
| 1y | -26.0% | +19.5% |
| ytd | -27.1% | +12.2% |
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LDOS Fundamental Analysis
Leidos reported Q1 FY2026 (ending April 3, 2026) revenue of $4.40 billion, up 3.65% year-over-year, but this was a slight deceleration from the 5.1% growth seen in Q4 FY2025 and the 6.9% growth in Q3 FY2025. The company's revenue has been growing steadily, from $4.13 billion in Q2 FY2024 to $4.40 billion in Q1 FY2026, but the pace has moderated, reflecting a mature federal IT market. The Health segment, which generated $1.19 billion in revenue, remains a key driver, but overall growth is being constrained by budget uncertainties and a cautious government spending environment.
The company is highly profitable, with Q1 FY2026 net income of $328 million, a net margin of 7.5%, and EPS of $2.60, up from $2.53 in Q4 FY2025. Gross margin improved to 17.3% from 16.0% in the prior quarter, and operating margin expanded to 11.5% from 11.2%, indicating solid cost control and operational efficiency. However, margins are below the industry average for IT services, which typically see gross margins in the 20-30% range, but Leidos's focus on government contracts often yields lower margins due to cost-plus pricing. The company's profitability has been consistent, with net income ranging from $322 million to $391 million over the past five quarters, and the trajectory is stable, with no signs of margin compression.
Leidos maintains a healthy balance sheet with a current ratio of 1.70, indicating strong short-term liquidity, and a debt-to-equity ratio of 1.21, which is moderate for a defense contractor. The company generated $1.86 billion in free cash flow over the trailing twelve months, providing ample cash to fund operations and return capital to shareholders. In Q1 FY2026, operating cash flow was $301 million, and free cash flow was $270 million, though this was down from $452 million in Q4 FY2025 due to working capital swings. The company's ROE is strong at 29.6%, and its ROA is 8.9%, reflecting efficient use of equity and assets. With a dividend yield of 0.87% and a payout ratio of 14.5%, Leidos balances growth investments with shareholder returns, and its cash flow generation supports its debt obligations, as evidenced by a debt-to-equity ratio of 1.21 and a current ratio of 1.70.
Quarterly Revenue
$4.4B
2026-04
Revenue YoY Growth
+3.6%
YoY Comparison
Gross Margin
17.3%
Latest Quarter
Free Cash Flow
$1.9B
Last 12 Months
Revenue & Net Income Trends (2 Years)
Revenue Breakdown
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Valuation Analysis: Is LDOS Overvalued?
Given that Leidos has positive net income, the primary valuation metric is the price-to-earnings (PE) ratio. The trailing PE is 16.35x, while the forward PE is 11.00x, indicating that the market expects significant earnings growth in the next year, as the forward PE is based on estimated EPS of $15.00 (from analyst data) versus trailing EPS of $8.60 (calculated from net income of $1.08 billion over the last four quarters). This gap of 5.35x suggests the market is pricing in a 49% earnings increase, which is optimistic but supported by the company's strong backlog and defense spending trends.
Compared to the industry average, Leidos's valuation appears attractive. The stock trades at a trailing PE of 16.35x, which is below the S&P 500's average of around 22x, and its forward PE of 11.00x is a 50% discount to the market's forward PE of 22x. The company's EV/EBITDA of 12.06x is also reasonable, and its price-to-sales ratio of 1.41x is below the industry average of 2.5x for IT services, indicating that the stock is undervalued relative to its peers. This discount is likely due to the market's concerns about government spending and the recent revenue miss, but it may be unjustified given Leidos's consistent profitability and cash flow generation.
Historically, Leidos's PE ratio has ranged from 11.93x (in Q1 2025) to 21.49x (in Q1 2022), and the current trailing PE of 16.35x is near the middle of this range. The stock's price-to-book ratio of 4.94x is near the higher end of its historical range (2.64x to 5.09x), suggesting that the market is valuing its assets at a premium, but this is consistent with its high ROE of 29.6%. The PEG ratio of 0.82x indicates that the stock is undervalued relative to its growth rate, as a PEG below 1 is typically considered attractive. Overall, the valuation suggests that Leidos is trading at a reasonable price with upside potential if the company meets its growth expectations.
PE
16.4x
Latest Quarter
vs. Historical
Mid-Range
5-Year PE Range 12x~21x
vs. Industry Avg
N/A
Industry PE ~N/A*
EV/EBITDA
12.1x
Enterprise Value Multiple
Investment Risk Disclosure
Financial risks include a debt-to-equity ratio of 1.21, which, while manageable, could become problematic if interest rates rise or cash flow weakens. The company's net margin of 7.5% is below the IT services industry average, reflecting cost-plus pricing on government contracts, which limits margin expansion. Additionally, revenue growth decelerated to 3.65% YoY, and any further slowdown could pressure earnings and the stock's valuation. The payout ratio of 14.5% is low, but the dividend yield of 0.87% is modest, offering limited income support during downturns.
Market risks include valuation compression if the stock's forward PE of 11.0x expands to the market average of 22x, which seems unlikely given the growth slowdown. The stock's beta of 0.546 suggests lower volatility than the market, but the 49.9% max drawdown over the past year shows that idiosyncratic risks can dominate. Competitive threats from private defense contractors like Saronic, which are building autonomous vessels, could disrupt traditional defense contracts. Regulatory risks include government shutdowns, which directly impact revenue, as seen in the recent 6% stock drop on shutdown fears.
In a worst-case scenario, a prolonged government shutdown or significant budget cuts could lead to revenue declines, margin compression, and a de-rating of the stock. The 52-week low of $98.86 represents a 29.7% downside from the current price of $140.66. If the company misses earnings estimates and analysts cut targets, the stock could approach the low target of $125.00, a 11.1% loss, but a severe recession could push it to the 52-week low, implying a -29.7% return. Investors should be prepared for potential losses of up to 30% in adverse conditions.
FAQ
The key risks are: 1) Government shutdown or budget cuts, which directly impact revenue (as seen in the 6% stock drop on shutdown fears). 2) Decelerating revenue growth, which fell to 3.65% YoY in Q1 FY2026, potentially leading to earnings misses. 3) High debt levels, with a debt-to-equity ratio of 1.21, which could strain finances if interest rates rise. 4) Competitive disruption from private defense contractors like Saronic, which could take market share. The most severe risk is a prolonged shutdown, which could push the stock to the 52-week low of $98.86, a 29.7% downside.
The 12-month forecast is moderately bullish. In the base case (50% probability), the stock trades around the analyst average target of $156.60, implying 11.3% upside. In the bull case (25% probability), it could reach $225, driven by strong defense spending and contract wins. In the bear case (25% probability), it could fall to $125 or lower, if a government shutdown occurs. The most likely scenario is the base case, assuming stable government spending and continued execution. The stock's forward PE of 11.0x suggests that earnings growth is expected, and if that materializes, the stock should appreciate.
LDOS is undervalued relative to its peers and the broader market. Its trailing PE of 16.35x is below the S&P 500's 22x, and its forward PE of 11.0x is a 50% discount. The price-to-sales ratio of 1.41x is well below the industry average of 2.5x, and the PEG ratio of 0.82 suggests the stock is cheap relative to its growth. Historically, the PE has ranged from 11.93x to 21.49x, and the current level is near the middle, but the forward PE is at the low end. The market is pricing in modest growth and potential risks, but the valuation implies that expectations are low, offering a margin of safety.
LDOS is a good buy for investors with a medium-to-long-term horizon who are comfortable with government spending risks. The stock trades at a forward PE of 11.0x, a 50% discount to the S&P 500, and has a PEG of 0.82, indicating undervaluation. Analysts have a consensus 'Buy' rating with an average target of $156.60, implying 11.3% upside. However, the stock is down 22.4% over the past year, and a government shutdown could cause further downside. For those seeking a value play with a stable cash flow, LDOS is attractive, but it is not suitable for short-term traders given the volatility.
LDOS is better suited for long-term investment due to its stable cash flows, moderate growth, and attractive valuation. The stock's beta of 0.546 indicates lower volatility than the market, but it has experienced a 49.9% max drawdown, showing that short-term swings can be significant. The dividend yield of 0.87% provides a small income component, and the payout ratio of 14.5% suggests room for dividend growth. For long-term investors, a holding period of at least 3-5 years is recommended to ride out government spending cycles. Short-term traders may find opportunities in the recent momentum, but the risks are higher given the uncertainty.