Leidos Holdings, Inc. LDOS, a renowned defense contractor, has lately been in the headlines under the defense section for securing multiple million-dollar contracts this month. The company secured a $987 million contract for offering engineering and sustainment services to Foreign Military Sales customers of the U.S. Air Force's F-16 jet program and a $107 million deal for providing geospatial intelligence products with the National Geospatial-Intelligence Agency. 

In December 2024, LDOS also won three awards from the Defense Information Systems Agency to advance IT transformation, as part of the $11.5 billion Defense Enclave Services program, which aims at optimizing network services for Fourth Estate Defense Agencies and Field Activities. 

This might encourage investors to add LDOS stock to their portfolio, with the multiple contract wins bolstering the company’s revenue generation prospects. However, before making any hasty decision, let’s delve into the company’s year-to-date performance, growth opportunities and investment risks (if any).

LDOS Stock Outperforms Industry, Sector & S&P500

Leidos Holdings’ shares have surged an impressive 33.8% in the year-to-date period, outperforming the Zacks Aerospace-Defense industry’s decline of 10.7% and the broader Zacks Aerospace sector’s plunge of 0.02%. LDOS has also outpaced the S&P 500’s rise of 25.2% during the same time frame. 

A similar stellar performance has been offered by other defense players, such as Rocket Lab USA RKLB, Archer Aviation ACHR and RTX Corp. RTX, whose shares have witnessed a surge of 349.7%, 54.6% and 38.4%, respectively, year to date.

Leidos’ YTD Performance

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What’s Been Pushing LDOS’ Stock Up?

For a defense stock like LDOS, steady contract wins from the Pentagon as well as other U.S. allies serve as a major indicator for the company’s capability to generate sufficient revenues in the long term.  Keeping up with this trend, the company recorded net bookings worth $8.1 billion in the third quarter of 2024, which led to a solid backlog of $40.56 billion at the end of September 2024. This backlog count reflected an improvement from the prior quarter’s figure of $36.49 billion, bolstering LDOS’ revenue growth prospects in the coming years. This can be expected to have boosted investors’ confidence in this stock, as evident in its year-to-date share price surge.

What Lies Ahead for LDOS Stock?

The global defense industry’s growth outlook remains strong, driven by geopolitical tensions, rising weapons stock depletion, and increased defense spending by developed and developing nations. Notably, these countries are integrating data analytics and AI for enhanced battlespace awareness. This creates a favorable environment for stable growth in S&P 500 defense stocks like Leidos Holdings, renowned for its expertise in airborne operations, intelligence, surveillance and reconnaissance with diverse armed forces globally.

In line with this, the consensus estimate for LDOS’ long-term (three-to-five-year) earnings growth rate is currently pegged at 14.8%.

A quick sneak peek at its near-term earnings and sales estimates mirrors a similar picture.

LDOS’ Upbeat Estimates

The Zacks Consensus Estimate for LDOS’ 2024 and 2025 sales suggests an improvement of 6.4% and 3.1%, respectively, year over year. 

The Zacks Consensus Estimate for 2024 and 2025 earnings per share has moved north 11.9% and 9.6%, respectively, over the past 60 days. The upward revision in earnings estimates indicates analysts’ increasing confidence in the stock.

Image Source: Zacks Investment Research

Image Source: Zacks Investment Research

Risks to Consider Before Choosing LDOS Stock

While growth opportunities in the defense industry are significant, some challenges persist, which investors should consider before investing in Leidos Holdings. A major concern is the ongoing supply-chain shortage affecting the sector, particularly the limited availability of critical materials like semiconductors and rare earth elements vital for defense technologies. This issue is exacerbated by global dependence on a few nations, such as China and Russia, intensifying the supply-chain imbalance triggered during the pandemic.

Although pandemic-related disruptions have largely subsided, these broader supply-chain challenges are unlikely to be resolved soon. As a result, the adverse impacts of material shortages are expected to persist, posing a near-term threat to defense contractors like LDOS and potentially affecting their operational efficiency and growth prospects.

LDOS Stock Trading at a Discount

In terms of valuation, LDOS’ forward 12-month price-to-earnings (P/E) is 14.04X, a discount to its peer group’s average of 15.52X. This suggests that investors will be paying a lower price than the company's expected earnings growth compared to that of its peer group.

Image Source: Zacks Investment Research

Should You Buy LDOS Now?

To conclude, investors interested in LDOS may add this stock to their portfolio, considering its discounted valuation, long-term growth prospects, and upbeat near-term sales and earnings estimates. 

LDOS currently has a VGM Score of A, which is also a favorable indicator of strong performance. The company’s Zacks Rank #1 (Strong Buy) further supports our thesis. You can see the complete list of today’s Zacks #1 Rank stocks here.
 

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Leidos Holdings, Inc. (LDOS) : Free Stock Analysis Report

RTX Corporation (RTX) : Free Stock Analysis Report

Rocket Lab USA, Inc. (RKLB) : Free Stock Analysis Report

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