Leidos Holdings Inc. LDOS posted impressive fourth-quarter 2024 results. Both its top and bottom-line figures comfortably surpassed their respective Zacks Consensus Estimate. On a year-over-year basis, LDOS’ revenues and earnings also reflected solid growth trends.

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While increased demand from all of LDOS’ customer segments, especially managed health services, boosted the company’s top-line performance, improved program execution, along with cost control measures, bolstered its bottom line. Moreover, LDOS ended 2024 with a healthy cash balance of $943 million, which came in higher than the year-ago figure of $777 million.  Such an improved cash balance reflects a healthy financial position for the company.

Such an impressive quarterly performance might lure investors interested in defense stocks to add LDOS to their portfolio. However, a prudent investor knows that a significant decision like buying a stock should not depend on a company’s single quarterly performance alone. Instead, to make a more informed decision, one should be mindful of the stock’s performance over the past year in terms of share price return, its long-term prospects as well as risks (if any) to investing in the same. We have provided a detailed discussion on this.

LDOS Stock Outperforms Industry & Sector, but Lags S&P500

Shares of Leidos Holdings have surged an impressive 13.4% over the past year, outperforming the Zacks Aerospace-Defense industry’s decline of 1.8% as well as the broader Zacks Aerospace sector’s return of 7.9%. The defense contractor, however, underperformed the S&P 500’s return of 23.4% in the past year.

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A similar positive share price performance has been offered by other industry players, such as RTX Corp. RTX, Northrop Grumman Corp. NOC and Lockheed Martin Corp. LMT, whose shares have witnessed a surge of 42.6%, 6.2% and 5.4%, respectively, over the past year.

What Pushed LDOS Stock Up? 

For a defense stock like LDOS, steady contract wins from the Pentagon and other U.S. allies serve as a major indicator of its capability to generate sufficient revenues in the long term.  Keeping up with this trend, the company secured a seven-year contract in February 2025 to deliver a new meteorological and oceanographic (MetOc) service for the Ministry of Defence in support of the U.K.’s National Centre for Geospatial Intelligence. This contract win should strengthen LDOS’ position in the U.K. Defence Intelligence industry.

LDOS also secured a $2.6 billion sustainment contract last month for maintaining 12,000 units of Transportation Security Equipment deployed at more than 430 airport locations in the United States and its territories. Prior to that, LDOS won a $120-million contract to provide Key Management Architecture & Engineering and Cyber Security Engineering Support Services to the Department of Defense, Intelligence Community and civilian agencies. Such valuable contract wins culminated in a solid backlog count of $43.55 billion at the end of 2024, bolstering LDOS’ revenue generation prospects. This, in turn, must have boosted investors’ confidence in the stock, which was reflected in its latest share price hike, as mentioned above. 

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 growth environment for 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.

Estimates for LDOS

The Zacks Consensus Estimate for first-quarter and full-year 2025 sales suggests an improvement of 2.4% and 3.1%, respectively, year over year. A similar improvement can be observed from its earnings estimate.

However, the Zacks Consensus Estimate for 2025 earnings per share has moved south 0.3% over the past 60 days. The downward revision in earnings estimate indicates analysts’ declining 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’ Poor Leverage Poses Further Risk

A quick sneak peek at the company’s total debt-to-capital ratio over the past year compared to that of its peer group shows a dismal scenario. LDOS’ total debt-to-capital ratio came in higher than that of its peer group. A debt-to-capital higher ratio implies LDOS is more reliant on debt than its peer group, making it potentially vulnerable to economic downturns where meeting debt payments might become difficult.

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Final Thoughts

To conclude, investors interested in LDOS stock should wait for a better entry point, considering the downward revision in its 2025 earnings estimate and poor leverage compared to that of its peer group. The company’s Zacks Rank #4 (Sell) further supports our thesis.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.  

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Lockheed Martin Corporation (LMT) : Free Stock Analysis Report

Northrop Grumman Corporation (NOC) : Free Stock Analysis Report

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

RTX Corporation (RTX) : Free Stock Analysis Report

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