On Monday, UBS began coverage on Leidos Holdings (NYSE:LDOS) stock, a defense and information technology service provider, with a Neutral rating and a price target set at $182.00.
The firm's research suggests that Leidos has displayed a consistent book-to-bill ratio between 1.1 and 1.2 over the past three years, indicating a solid growth trajectory for the company.
This outlook aligns with the company's impressive 54% year-to-date return and current market capitalization of $22 billion. According to InvestingPro data, 9 analysts have recently revised their earnings estimates upward for the upcoming period.
The analyst from UBS highlighted that new claims from the Veterans Benefits Administration (VBA) are likely to contribute to sustainable volume and potentially favorable margins for Leidos, especially after a strong performance in 2024. The firm also noted that its earnings per share (EPS) estimates for 2025 are 6% higher than the consensus.
The company's solid financial position is reflected in its GOOD overall health score on InvestingPro, which offers comprehensive analysis through its Pro Research Reports, available for over 1,400 US stocks.
Despite the positive growth outlook, there are challenges ahead for Leidos. The company has already indicated that it expects slower growth in 2025. Additionally, Leidos' above-average exposure to the Federal Civilian (FedCiv) sector could impact its valuation.
The market may remain cautious until the government's efficiency initiatives are more clearly defined and implemented. Trading at a P/E ratio of 18.6x, InvestingPro analysis suggests the stock is slightly undervalued based on its Fair Value calculations, with additional ProTips available for subscribers.
The UBS analyst's statement reflects a balance between the company's strong historical performance and the potential risks associated with its market segment. The firm's stance is informed by both the opportunities presented by new VBA claims and the uncertainties surrounding future government efficiency measures.
In other recent news, Leidos, a Fortune 500® innovation company, has been awarded a contract potentially worth up to $235 million by the U.S. Department of Health and Human Services to modernize the Organ Procurement and Transplant Network (OPTN). This significant reform of the OPTN aims to enhance transparency, performance, governance, and efficiency in the organ donation and transplantation process.
Leidos also marked its sixth consecutive quarter of growth in Q3 2024, reporting a record adjusted EBITDA margin of 14.2%, a 44% increase in adjusted diluted EPS, and a 7% revenue increase from the previous year, reaching $4.19 billion. Consequently, the company raised its 2024 revenue guidance to between $16.35 billion and $16.45 billion.
In addition to these developments, JPMorgan revised its price target for Leidos to $205, up from $185, while retaining an Overweight rating on the stock. This was attributed to strong performance trends in the Federal IT sector, particularly in the Health & Civil sector.
On the dividend front, Leidos announced an increase to $0.40 per share. The company also secured $8.1 billion in net bookings, resulting in a total backlog of $40.6 billion. Despite challenges in the National Security and Digital segment, the Health & Civil segment continues to perform strongly, particularly in managed health services.
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