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 2022 | Defense | Civil | Health | Total |
|---|---|---|---|---|
| Revenue | 1,958 | 766 | 591 | 3,315 |
| YoY Revenue Growth | 5% | 4% | 10% | 13.65% |
| Net Operating Income | 152 | 74 | 102 | 308* |
| Operating Margin | 7.8% | 9.7% | 17.3% | 9.3% |
| Operating Margin Growth | 20% | 80% | -5% | 19% |
| % of Gross Operating Income | 46% | 23% | 31% | 100% |
| YoY Backlog Growth | 2.4% | 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.