Leidos Holdings, Inc.

LDOS Details

Follow-on Prime Contract Awarded by FAA:Leidos Holdings, Inc. (NYSE: LDOS) is a Fortune 500® information technology, engineering, and science solutions and services leader, which brings innovative technology and sector expertise to customers in defense, intelligence, civil, and health markets. The company was recently awarded a follow-on prime contract by the Federal Aviation Administration (FAA), under which, LDOS will help FAA in transforming and modernizing the delivery of flight briefing services by decreasing the program costs and by providing technology enhancements.

Decent Q3 FY19 Results: In the third quarter of fiscal year 2019, Leidos reported year-over-year revenue growth of 10% with adjusted EBITDA margins of 10.7%. In Q3 2019, the company reported operating income of USD 249 million compared to USD 203 million in the previous corresponding period, primarily attributable to the payment of an arbitration award relating to a contract in a prior business operation.  At the end of the third quarter, the company had Net Bookings of USD 5.2 billion, representing a book-to-bill ratio of 1.8%. In Defense Solutions division, the company witnessed revenue growth of 8.3% in Q3FY19 as compared to pcp, primarily due to new awards and a net increase in program volumes, partially offset by the completion of certain contracts. Civil and health revenues for the quarter increased by 10.4% and 14.4%, respectively, in Q3 FY19 as compared to pcp. The company has declared a quarterly cash dividend of USD 0.34 per share.

Outlook:For the full year 2019, the company expects its revenue to be between USD 10.90 billion and USD 11.00 billion with adjusted EBITDA margins to be in the range of 10.2% to 10.4%. The company expects its FY19 diluted EPS to be between USD 4.90 and USD 5.10.

Valuation Methodology:Price to Earnings Multiple Approach

P/E Valuation Multiple (Source: Thomson Reuters)

Note: All forecasted figures and peers have been taken from Thomson Reuters, *NTM-Next Twelve Months

Recommendation:In the past six months, the stock gained 14.8% and is currently trading near to its 52-week high of USD 92.42. We have valued the stock using PE based relative valuation method and arrived at a target price of lower single-digit downside (in % terms). Thus, we suggest investors to book profit and recommend a “Sell” rating on the stock at the closing price of USD 92.080, up 2.72% on 11 December 2019.

 
LDOS Daily Technical Chart (Source: Thomson Reuters)

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