On Thursday, Goldman Sachs adjusted its stance on Leidos Holdings (NYSE:LDOS), shifting from a previous Buy rating to a Neutral position. The firm also revised the price target for Leidos shares to $153.00, a decrease from the earlier $228.00 target.
According to InvestingPro data, despite this downgrade, 9 analysts have recently revised their earnings estimates upward, and the company appears undervalued based on its Fair Value analysis. The reason behind this change, as stated by the analyst, revolves around the narrowing difference between Goldman Sachs' projections and the consensus, as well as certain risks and inconsistencies in the company's performance.
Leidos Holdings, a company predominantly engaged in providing services to the government, with nearly half of its revenue stemming from the Department of Defense (DoD) and almost 40% from federal civilian agencies, has recently shown strong performance.
With a market capitalization of $20.47 billion and revenue growth of 7.4%, this prominent player in the Professional Services industry has demonstrated robust financial health.
This has been particularly evident in their Health segment, which has delivered growth and margins that have exceeded estimates. InvestingPro subscribers can access detailed financial metrics and a comprehensive Pro Research Report that provides deep insights into the company's performance across all segments.
The analyst acknowledged the potential for the new CEO-led management team to continue fostering operational improvements within Leidos. This optimism is derived from the company's recent track record of robust results and the strategic focus of their leadership.
Despite these positive aspects, the analyst expressed concerns over the re-compete risk associated with the Veterans Benefits Administration (VBA) exam business within the Health sector. Additionally, the growth and margins in other segments of the company have exhibited variability, which contributes to the decision to downgrade the stock.
Nevertheless, InvestingPro data shows the company maintains a strong financial position with a P/E ratio of 17.3 and has consistently maintained dividend payments for 13 consecutive years, demonstrating long-term stability despite short-term fluctuations.
Leidos Holdings has not responded publicly to the rating adjustment by Goldman Sachs as of the date of the report. The company's stock performance in the upcoming period will be observed with interest, as investors and analysts evaluate the impact of the firm's internal management strategies and external market conditions.
In other recent news, Leidos Holdings has secured three new contracts totaling over $30 million from the Defense Information Systems Agency (DISA).
The company also reported robust financial performance for Q3 2024, marking its sixth consecutive quarter of growth with a record adjusted EBITDA margin of 14.2% and a 7% revenue increase from the previous year, reaching $4.19 billion. Consequently, Leidos raised its 2024 revenue guidance to between $16.35 billion and $16.45 billion.
UBS initiated coverage on Leidos with a Neutral rating, while JPMorgan revised its price target for Leidos to $205, up from $185, citing strong performance trends in the Federal IT sector. Leidos also secured a significant contract, potentially worth up to $235 million, to modernize the Organ Procurement and Transplant Network (OPTN).
Lastly, the company announced a quarterly dividend increase to $0.40 per share and secured $8.1 billion in net bookings, resulting in a total backlog of $40.6 billion. These are the latest developments in Leidos Holdings' business operations.
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