A month has gone by since the last earnings report for Leidos (LDOS Quick QuoteLDOS - Free Report) . Shares have lost about 0.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Leidos due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Leidos Holdings Q2 Earnings Beat, Revenues Rise Y/Y

Leidos Holdings’ second-quarter 2023 adjusted earnings of $1.80 per share beat the Zacks Consensus Estimate of $1.55 by 16.1%. The bottom line also increased 13.2% from $1.59 per share registered a year ago.

The company reported GAAP earnings of $1.50 per share, which increased from the prior-year quarter’s figure of $1.24.

The year-over-year upside in earnings can be attributed to an improved business mix and program execution within each segment, as well as reduced indirect spending across the company.

Total Revenues

Leidos Holdings generated total revenues of $3,838 million in the reported quarter, exceeding the Zacks Consensus Estimate of $3,725.7 million by 3%. The top line also improved 6% year over year, driven by increased demand across all customer segments, especially for digital modernization, hypersonics and medical examination solutions.

Backlog

The company recorded a total backlog of $34.15 billion, up from $34.72 billion in the prior-year quarter. Of this amount, $8.30 billion was funded.

Operational Statistics

The cost of revenues increased 6.9% to $3,271 million. The operating income totaled $388 million compared with $336 million in the year-ago quarter.

The operating income margin was 10.1% compared with 9.3% in the prior-year period. Interest expenses were $56 million, up 12% year over year.

Segmental Performance

Defense Solutions: Net revenues in this segment improved 5% year over year to $2,159 million. The increase can be attributed to higher revenue growth from digital modernization, including the Navy Next-Generation Enterprise Network Recompete Service Management, Integration and Transport contract, and hypersonics.

The operating income increased to $204 million from the year-ago quarter’s $171 million. The operating margin came in at 9.3%.

Health: The segment recorded revenues of $749 million, up 9% year over year. This improvement can be attributed to the growth of the Social Security Administration Information Technology Support Services Contract II and the higher levels of medical examinations.

The operating income was $127 million compared with $136 million in the year-ago quarter. The operating margin came in at 17%.

Civil: Revenues in this segment amounted to $902 million, up 5% year over year. The upside was due to revenue growth in the National Aeronautics and Space Administration Advanced Enterprise Global Information Technology Solutions program and the increased demand for engineering support to commercial energy companies and a partial recovery within the security product portfolio.

The operating income increased to $82 million from $56 million in the year-ago period. The operating margin came in at 9.1%.

Financials

Leidos Holdings’ cash and cash equivalents as of Jun 30, 2023 were $329 million compared with $516 million as of Dec 30, 2022.

The long-term debt, net of the current portion, amounted to $4,670 million as of Jun 30, 2023, compared with $3,928 million as of Dec 30, 2022.

Net cash used by operating activities was $164 million compared with $45 million a year ago.

2023 Guidance

Leidos Holdings reiterated its 2023 view. The company still expects to generate adjusted earnings in the range of $6.40-$6.80 per share. The Zacks Consensus Estimate for earnings is pegged at $6.49 per share, lower than the midpoint of the guided range.

It updated its 2023 revenue guidance. LDOS expects revenues in the range of $14.9-$15.2 billion, up from the prior guidance range of $14.7-$15.1 billion. The Zacks Consensus Estimate for revenues is pegged at $15.01 billion, in line with the midpoint of the guided range.

The company still expects cash flow from operating activities at or more than $700 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, Leidos has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Leidos has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Leidos is part of the Zacks Aerospace - Defense industry. Over the past month, RTX (RTX Quick QuoteRTX - Free Report) , a stock from the same industry, has gained 1.1%. The company reported its results for the quarter ended June 2023 more than a month ago.

RTX reported revenues of $18.32 billion in the last reported quarter, representing a year-over-year change of +12.3%. EPS of $1.29 for the same period compares with $1.16 a year ago.

For the current quarter, RTX is expected to post earnings of $1.18 per share, indicating a change of -2.5% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.

RTX has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.