Leidos Holdings, Inc.

LDOS Details

Leidos Holdings, Inc. (NYSE: LDOS) is a Fortune 500 scientific, engineering, and information technology business, which primarily serves domestic and foreign government entities and agencies in the defense, intelligence, civil, and healthcare sectors. By utilizing its five technical core competencies: digital modernization, cyber operations, mission software systems, integrated systems, and mission operations, LDOS provides customers with domain-specific and cross-market innovation products.

New Contract Award from U.S. Army: The Army Geospatial Center (AGC) awarded LDOS a prime contract on August 2, 2021, to support the project's High-Resolution Three Dimensional (HR3D) Geospatial Information Operation and Technology Integration. The entire contract's estimated value is USD 600 million. The contract's performance period contains a one-year base plus three one-year options, and the majority of the work will be done in Virginia and other CONUS and OCONUS locales.

Completion of Transition Milestone for NGEN-R SMIT: LDOS completed the transition of enterprise information technology (IT) networks for the Department of the Navy on August 02, 2021. The project encompasses establishing the Service Management, Integration, and Transport (SMIT) contract framework, originally granted in February 2020 as part of the Next Generation Enterprise Network Recompete (NGEN-R).

6MFY21 Results: The company reported a 16.54% rise in revenues to USD 6.76 billion during 6MFY21 (ended July 02, 2021) compared to USD 5.80 billion during 6MFY20 (ended July 03, 2020), primarily due to an increase in volume on certain programs, plus USD 37 million and USD 50 million benefit from the acquisitions of Gibbs & Cox and 1901 Group, respectively. LDOS reported an increase in net income to USD 375 million during 6MFY21 vs. USD 269 million during 6MFY20. LDOS recorded net bookings of USD 7.6 billion during 6MFY21 vs. USD 10.2 billion during 6MFY20. The company's estimated total backlog value increased to USD 33.52 billion as of July 02, 2021.

LDOS Q2FY21 Financial Highlights (Source: Earnings Presentation, August 03, 2021)

Key Risks: Contracts with the U.S. Government accounted for 87% of the company's total revenue in FY20 and FY19, 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:

FY21 Guidance (Source: Earnings Presentation, August 03, 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 is currently trading in the mid-band of the 52-week range of USD 79.15 to USD 113.75. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is 27.15. We have valued the stock using the EV/EBITDA multiple-based relative valuation method and arrived at a target price of USD 114.60. Considering the company's excellent track record, recent contract wins and acquisitions, strong fundamentals, dividend yield, and attractive valuation, we recommend a "Buy" rating on the stock at the current price of USD 95.22, down 11.10% as of August 03, 2021, at 2:36 PM ET.

*All forecasted figures and Industry Information have been taken from REFINITIV.

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

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. 

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