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. 

ABM Industries Incorporated

ABM Details

ABM Industries Incorporated (NYSE: ABM) is a leading provider of integrated facility solutions through five business segments: Aviation, Business & Industry (B&I), Education, Technology & Manufacturing (T&M), and Technical Solutions. It provides janitorial, parking, facility services, building & energy solutions, and airline services across its varied business segments. The company generates most of its revenue from the Business & Industry segment. As of August 03, 2021, the company's market capitalization stood at USD 3.04 billion.

Consistent Dividends (Source: Investor Presentation, Q2FY21)

Reaching a Settlement Agreement: ABM Industries Overtime Cases (also known as the Bucio case), pending in the Superior Court of California, County of San Francisco, reached a signed settlement agreement on July 08, 2021. The case, filed in 2006, is regarding a legacy timekeeping system that ABM has not used since 2013. The agreement is still subject to court approval. According to the deal, ABM will pay a total of USD 140 million to settle all of the plaintiff's claims against the business.

New Contract with the City of Emporia: On June 29, 2021, ABM initiated an Energy Savings Performance Contract (ESPC) for the City of Emporia. The project's energy savings and efficiencies will assist in upgrading water meters throughout the city with Advanced Metering Infrastructure (AMI), which is expected to save USD 2.1 million in energy and operational costs over the next 20 years while also providing the city with additional USD 5.1 million in benefits.

6MFY21 Results: ABM reported a slight decline of 3.83% in revenues to USD 2.99 billion during 6MFY21 (ended April 30, 2021) compared to USD 3.11 billion during 6MFY20. However, the company reported an increase in net income to USD 105.7 million during 6MFY21 compared to a net loss of USD 108.8 million in 6MFY20. As of April 30, 2021, its balance sheet stood with cash and cash equivalents of USD 435.70 million, with a total debt of USD 641.20 million. The company declared a cash dividend of USD 0.19 per share, payable on August 02, 2021, to shareholders of record on July 01, 2021. This will be the company's 221st consecutive quarterly cash dividend.

Key Risks: Since the company incurs greater initial expenditures on new contracts until labor management and facilities operations normalize, long-term client relationships are often more profitable than short-term client partnerships. As a result, even if ABM gains comparable revenues from new clients, its financial situation and cash flows may be negatively impacted if it loses a significant number of long-term clients.

Outlook:

FY21 Outlook (Source: Investor Presentation, Q2FY21)

 

Valuation Methodology: Price/Earnings per share 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.

ABM Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: ABM stock price fell 10.66% in the past three months and is currently trading at a mid-band of the 52-weeks range of USD 33.51 to USD 55.48. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 56.53. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 56.43. Considering the company's excellent track record, recent contract wins, stable dividends yield, associated risks, and attractive valuation, we recommend a "Buy" rating on the stock at the closing price of USD 47.19, up 4.15% as of August 03, 2021.

*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.