Leidos Holdings, Inc.

LDOS Details

Leidos Holdings, Inc. (NYSE: LDOS) is a Fortune 500 scientific, engineering, and information technology company that primarily services government entities and agencies in the military, intelligence, civil, and healthcare sectors in the US and abroad. LDOS provides customers with domain-specific and cross-market innovative products by leveraging its five technical core competencies: digital modernization, cyber operations, mission software systems, integrated systems, and mission operations.

Latest News:

• New Contract Award from ONI: On October 15, 2021, LDOS stated that the Office of Naval Intelligence (ONI) awarded the company a prime contract with an estimated value of USD 65 million, pursuant to which it will provide professional information technology services and support for ONI's Hopper Information Services Center in Suitland, Maryland.
• NSA Support Award: On October 06, 2021, the company announced the award of a single contract by the National Security Agency (NSA) valued at up to USD 300 million. The award has a 5-year term and covers development and modernization services for NSA's Technical Signals Intelligence (TechSIGINT) mission.
• Protecting US Borders: On September 30, 2021, the US Customs and Border Protection (CBP) awarded a contract to LDOS to provide Low-Energy Portal (LEP) systems for non-intrusive inspection (NII) of passenger vehicles at the US – Mexico land border crossings. LDOS received an initial delivery order worth USD 107 million (including options) under the contract, which has a ceiling value of USD 390 million.

Q2FY21 Results:

• Improvement in Revenues: LDOS reported an 18.33% increase in revenues to USD 3.45 billion in Q2FY21 (ended July 02, 2021) from USD 2.91 billion in Q2FY20 (ended July 03, 2020), resulting from an increase in veterans' disability examinations post COVID-19 pandemic and from other program wins.
• Net Income Growth: The Q2FY21 net income was USD 169 million vs. USD 153 million reported in Q2FY20, representing an EPS (diluted) of USD 1.18.
• Robust Balance Sheet: The company exited the quarter with a cash balance of USD 338 million and total debt of 5.12 billion.

Key Risks:

• Customer Concentration Risk: Contracts with the US Government accounted for 86% and 87% of the company's total revenues in Q2FY21 and H1FY21, respectively. Any decrease in business from government departments/organizations or any changes in federal budgets due to macroeconomic or political conditions could harm the company's financial health and operations.

Outlook:

• Revenue & EPS Estimate: LDOS expects to generate USD 13.7 – 14.1 billion in total revenues in FY21, with non-GAAP diluted EPS ranging from USD 6.35 – 6.65. The adjusted EBITDA margin for the year is estimated to range between 10.5% – 10.7%.
• Operating Cash Flow: The cash inflow from operating activities during FY21 is expected to be at least USD 875 million.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

LDOS Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

LDOS's stock price fell 5.45% in the past three months and is currently leaning towards the higher end of its 52-week range of USD 79.15 to USD 113.75. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 60.20. We have valued the stock using the EV/EBITDA multiple-based relative valuation methodology and arrived at a target price of USD 114.90.

Considering the slight correction in the stock price, robust fundamentals, new contract awards, consistent dividend yield, current valuation, and associated risks, we recommend a "Hold" rating on the stock at the current price of USD 100.94, down 0.89% as of October 26, 2021, 12:45 PM ET.

* The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and industry information have been taken from REFINITIV.  

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