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Leidos Holdings (LDOS) Surges 48% YTD: Should You Buy Now or Later?
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Leidos Holdings Inc.’s (LDOS - Free Report) shares have surged an impressive 47.5% in the year-to-date period, outperforming the Zacks Aerospace-Defense industry’s loss of 3.7% as well as the broader Zacks Aerospace sector’s return of 3.1%. They have also outpaced the S&P 500’s rise of 20.3% year to date. As a prominent defense contractor in the United States, Leidos rides on the solid inflow of contracts for its defense products, favorable defense budget and a strong financial position.
A similar stellar performance has been offered by other defense players, such as RTX Corp. (RTX - Free Report) , Lockheed Martin (LMT - Free Report) and General Dynamics (GD - Free Report) , whose shares have witnessed a surge of 43.1%, 28.5% and 15.6%, respectively, year to date.
Leidos’ YTD Performance
Image Source: Zacks Investment Research
With Leidos Holdings riding high, individuals may rush to add the stock to their portfolio. However, before making any hasty decision, it would be prudent to take a look at the reasons behind the surge, the stock’s growth prospects as well as risks (if any) to investing in the same. The idea is to help investors make a more insightful decision.
What Pushed LDOS Stock Up?
Leidos Holdings enjoys a continuous flow of orders for its varied cost-effective defense products, which range from technology-enabled services and mission software capabilities in the areas of cyber and security operations to advanced space, aerial, surface, and sub-surface manned and unmanned defense systems. Such order flow culminates into a solid backlog count, which, in turn, bolsters LDOS’ revenue generation prospects. Impressively, the company recorded a backlog of $36.49 billion at the end of June 2024 compared with the prior-year figure of $34.15 billion.
A solid financial position enables LDOS to invest in research and development, thereby allowing it to innovate more advanced defense products in the near future. Cash and cash equivalents totaled $0.82 billion at the end of June 2024, much higher than its current debt of $0.06 billion. So, we may safely conclude that the company holds a strong solvency position, at least in the near term. Such a strong solvency position can be expected to have boosted investors’ confidence in this stock, as evident in its year-to-date share price surge.
In March 2024, the U.S. President submitted the U.S. defense budget proposal for fiscal 2025, requesting an expenditure of $850 billion for the Department of Defense. This represents an increase of 1% over the fiscal 2024 enacted funding. Such encouraging spending provisions by the U.S. administration significantly boost the growth prospects of the nation’s renowned defense primes like Leidos Holdings.
Is LDOS Stock’s Growth Sustainable?
Growth prospects for the global defense industry remain bright, backed by emerging geopolitical tensions that have led to a massive spike in weapons stock depletion and increased defense spending from both developed and developing nations across the world. Hence, the stage is set for a stable growth trajectory for S&P 500 defense stocks like Leidos Holdings.
The Zacks Consensus Estimate for LDOS’ long-term (three-to-five year) earnings is pegged at a solid 12.5%.
A quick sneak peek at its near-term earnings and sales estimates mirrors a similar picture.
LDOS’ Upbeat Estimates
The Zacks Consensus Estimate for 2024 and 2025 sales reflects an improvement of 5.4% and 4.3%, respectively, year over year.
The Zacks Consensus Estimate for 2024 and 2025 earnings per share has moved north 5.4% and 5.2%, respectively, over the past 60 days.
The upward revision in earnings estimates indicates analysts’ increasing confidence in the stock.
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
Risks to Consider Before Choosing LDOS Stock
Despite the aforementioned growth opportunities, there are certain challenges in the industry that one should consider before investing in LDOS. One such headwind is the persistent supply-chain challenge that has been plaguing the defense industry and its players like Leidos Holdings. In particular, the shortage of critical materials, such as semiconductors and rare earth elements, which are essential for defense technologies, along with too much global reliance on a handful of nations like China and Russia, has added fuel to the acute supply-chain imbalance that occurred during the pandemic.
Although the effects of the pandemic have almost worn out, the other factors mentioned above are not likely to disappear anytime soon. So, the adverse impact of the supply-chain challenges is expected to continue to remain a threat for defense contractors like LDOS, at least in the near term.
Another headwind plaguing the defense industry players is the shortage of skilled labor, which has been exacerbated by an aging workforce. Per a study by the Aerospace Industries Association, industry retirements are estimated to create a gap of 3.5 million workers by 2026. This poses a great risk for manufacturing companies like LDOS, as such labor shortages can cause a delay in their product delivery.
LDOS Stock Trading at a Discount
In terms of valuation, LDOS’ forward 12-month price-to-earnings (P/E) is 17.20X, a premium to its peer group’s average of 17.99X. This suggests that investors will be paying a higher price than the company's expected earnings growth compared to that of its peers.
Image Source: Zacks Investment Research
What Should an Investor Do?
To conclude, investors interested in LDOS should make a move now and buy this stock, considering its discounted valuation, long-term growth prospects as well as upbeat near-term sales and earnings estimates, which can be expected to outweigh the industry challenges.
Image: Bigstock
Leidos Holdings (LDOS) Surges 48% YTD: Should You Buy Now or Later?
Leidos Holdings Inc.’s (LDOS - Free Report) shares have surged an impressive 47.5% in the year-to-date period, outperforming the Zacks Aerospace-Defense industry’s loss of 3.7% as well as the broader Zacks Aerospace sector’s return of 3.1%. They have also outpaced the S&P 500’s rise of 20.3% year to date. As a prominent defense contractor in the United States, Leidos rides on the solid inflow of contracts for its defense products, favorable defense budget and a strong financial position.
A similar stellar performance has been offered by other defense players, such as RTX Corp. (RTX - Free Report) , Lockheed Martin (LMT - Free Report) and General Dynamics (GD - Free Report) , whose shares have witnessed a surge of 43.1%, 28.5% and 15.6%, respectively, year to date.
Leidos’ YTD Performance
With Leidos Holdings riding high, individuals may rush to add the stock to their portfolio. However, before making any hasty decision, it would be prudent to take a look at the reasons behind the surge, the stock’s growth prospects as well as risks (if any) to investing in the same. The idea is to help investors make a more insightful decision.
What Pushed LDOS Stock Up?
Leidos Holdings enjoys a continuous flow of orders for its varied cost-effective defense products, which range from technology-enabled services and mission software capabilities in the areas of cyber and security operations to advanced space, aerial, surface, and sub-surface manned and unmanned defense systems. Such order flow culminates into a solid backlog count, which, in turn, bolsters LDOS’ revenue generation prospects. Impressively, the company recorded a backlog of $36.49 billion at the end of June 2024 compared with the prior-year figure of $34.15 billion.
A solid financial position enables LDOS to invest in research and development, thereby allowing it to innovate more advanced defense products in the near future. Cash and cash equivalents totaled $0.82 billion at the end of June 2024, much higher than its current debt of $0.06 billion. So, we may safely conclude that the company holds a strong solvency position, at least in the near term. Such a strong solvency position can be expected to have boosted investors’ confidence in this stock, as evident in its year-to-date share price surge.
In March 2024, the U.S. President submitted the U.S. defense budget proposal for fiscal 2025, requesting an expenditure of $850 billion for the Department of Defense. This represents an increase of 1% over the fiscal 2024 enacted funding. Such encouraging spending provisions by the U.S. administration significantly boost the growth prospects of the nation’s renowned defense primes like Leidos Holdings.
Is LDOS Stock’s Growth Sustainable?
Growth prospects for the global defense industry remain bright, backed by emerging geopolitical tensions that have led to a massive spike in weapons stock depletion and increased defense spending from both developed and developing nations across the world. Hence, the stage is set for a stable growth trajectory for S&P 500 defense stocks like Leidos Holdings.
The Zacks Consensus Estimate for LDOS’ long-term (three-to-five year) earnings is pegged at a solid 12.5%.
A quick sneak peek at its near-term earnings and sales estimates mirrors a similar picture.
LDOS’ Upbeat Estimates
The Zacks Consensus Estimate for 2024 and 2025 sales reflects an improvement of 5.4% and 4.3%, respectively, year over year.
The Zacks Consensus Estimate for 2024 and 2025 earnings per share has moved north 5.4% and 5.2%, respectively, over the past 60 days.
The upward revision in earnings estimates indicates analysts’ increasing confidence in the stock.
Risks to Consider Before Choosing LDOS Stock
Despite the aforementioned growth opportunities, there are certain challenges in the industry that one should consider before investing in LDOS. One such headwind is the persistent supply-chain challenge that has been plaguing the defense industry and its players like Leidos Holdings. In particular, the shortage of critical materials, such as semiconductors and rare earth elements, which are essential for defense technologies, along with too much global reliance on a handful of nations like China and Russia, has added fuel to the acute supply-chain imbalance that occurred during the pandemic.
Although the effects of the pandemic have almost worn out, the other factors mentioned above are not likely to disappear anytime soon. So, the adverse impact of the supply-chain challenges is expected to continue to remain a threat for defense contractors like LDOS, at least in the near term.
Another headwind plaguing the defense industry players is the shortage of skilled labor, which has been exacerbated by an aging workforce. Per a study by the Aerospace Industries Association, industry retirements are estimated to create a gap of 3.5 million workers by 2026. This poses a great risk for manufacturing companies like LDOS, as such labor shortages can cause a delay in their product delivery.
LDOS Stock Trading at a Discount
In terms of valuation, LDOS’ forward 12-month price-to-earnings (P/E) is 17.20X, a premium to its peer group’s average of 17.99X. This suggests that investors will be paying a higher price than the company's expected earnings growth compared to that of its peers.
Image Source: Zacks Investment Research
What Should an Investor Do?
To conclude, investors interested in LDOS should make a move now and buy this stock, considering its discounted valuation, long-term growth prospects as well as upbeat near-term sales and earnings estimates, which can be expected to outweigh the industry challenges.
LDOS currently has a VGM Score of B, which is also a favorable indicator of strong performance. The stock’s Zacks Rank #2 (Buy) further supports our thesis. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.