Leidos Holdings, Inc.

LDOS Details

Leidos Holdings, Inc. (NYSE: LDOS) is a scientific, engineering, and information technology company that primarily serves government entities and agencies in the military, intelligence, civil, and healthcare sectors in the United States and worldwide. LDOS leverages its five technical core capabilities to provide customers with domain-specific and cross-market innovative products: digital modernization, cyber operations, mission software systems, integrated systems, and mission operations. As of January 13, 2022, the company's market capitalization stood at USD 12.60 billion.

Latest News:

• Strategic Investment: On January 06, 2022, LDOS announced its strategic investment in HawkEye 360, the commercial provider of space-based radio frequency (RF) data and analytics. The investment is intended to achieve transformational growth in data and analytical services, where both the companies will share information and pool resources.
• Key Commercial Contract: In support of the US Department of Homeland Security (DHS) Cybersecurity and Infrastructure Security Agency (CISA), LDOS was granted the Priority Services Scientific, Engineering, and Technical Assistance (PS-SETA) prime contract on December 14, 2021. The competitive single-award hybrid contract includes the cost-plus-fixed-fee, firm-fixed-price, and reimbursable cost line items. It has a nine-month performance period as well as four one-year options. The contract will be worth around USD 61.5 million if all options are exercised.

Q3FY21 Results:

• Improvement in Revenues: LDOS reported a 7.43% increase in revenues to USD 3.48 billion in Q3FY21 (ended October 01, 2021) from USD 3.24 billion in Q3FY20 (ended October 02, 2020), driven by growth in all the segments.
• Net Income Growth: The Q3FY21 net income was USD 205 million vs. USD 163 million reported in Q3FY20, representing an EPS (diluted) of USD 1.43.
• Robust Balance Sheet: The company exited the quarter with a cash balance of USD 587 million and total debt of 5.10 billion.

Key Risks:

• Customer Concentration Risk: In Q3FY21 and 9MFY21, contracts with the US government accounted for 88% and 87% of total revenues. Due to macroeconomic or political factors, any decline in business from government departments/organizations or any changes in federal budgets could impair the company's financial health and operations.

Outlook:

• Revenue & EPS Estimate: LDOS expects to generate USD 13.7 – 13.9 billion in total revenues in FY21, with non-GAAP diluted EPS ranging from USD 6.55 – 6.75. The adjusted EBITDA margin for the year is estimated to range between 10.9% – 11.1%.

 FY21 Guidance (Source: Q3FY21 Earnings Presentation, November 02, 2021)

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 12.31% in the past six months and is currently leaning towards the lower end of its 52-week range of USD 82.75 to USD 113.75. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is at 58.32. We have valued the stock using the EV/EBITDA multiple-based relative valuation methodology and arrived at a target price of USD 113.09.

Considering the correction in the stock price, strategic investments, commercial contracts, positive outlook, and associated risks, we recommend a "Buy" rating on the stock at the closing price of USD 92.48, up 2.97% as of January 13, 2022.

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

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