Leidos Holdings

Stock: LDOS

Rating: Buy

Author: Waleed M. Tariq

Overview

  • Leidos delivers health, civil, and defense solutions abroad.
  • Mission operations, mission software products, and integrated systems are critical. DoD, USIC, DHS, FAA, and VA contributed 87% of 2021 revenue.

Bullish

  • The company is diversifying aggressively and has lucrative contracts.
  • Balance sheet and valuation may be better, but advantages outweigh risks.
  • The corporation is investing in its future, which looks positive.

Bearish

  • The balance sheet is flawed.

Health and Civil Segments

  • Health is most profitable and fastest-growing. Profitability was enhanced through procurement and delivery efficiencies.
  • Lower civil sales and profit. The segment’s operating margin rose from 5.4% in Q1 2021 to 9.7% in the MRQ.
Q1 2022DefenseCivilHealthTotal
Revenue1,9587665913,315
YoY Revenue Growth5%4%10%13.65%
Net Operating Income15274102308*
Operating Margin7.8%9.7%17.3%9.3%
Operating Margin Growth20%80%-5%19%
% of Gross Operating Income46%23%31%100%
YoY Backlog Growth2.4%35%6.6%11.5%

Defense Segment

  • The company’s mainstay needs notice. NGEN-R SMIT and IFPC contracts improved sales 5%. The largest category has the lowest operating margin.
  • The 2016 acquisitions of LMT’s IS&GS division doubled the company’s size and created a basic business unit.

Dividends

  • The company’s forward dividend yield is 1.4% and its 5-year growth rate is 2.1%, both below the industry median.

Better balance sheet

  • Strong cash flow is vital to improving its balance sheet, as its current and quick ratios are both 1.
  • The company’s balance sheet isn’t bad, but it may be deleveraged to enhance cash flow and returns.

Conclusion

  • With increased momentum, I predict the stock to gain a lot within a year.