Where’s Leidos Holdings (LDOS) headed after positive Q3 report

Leidos Holdings, Inc. (NYSE: LDOS), a leading technology solutions provider focused on areas like defense and healthcare, has been broadly resilient to market headwinds like COVID-induced business disruption, and more recently economic uncertainties. The company, which has been serving customers for more than 50 years, bets on its diversified portfolio and strong contract wins to drive long-term growth.

Leidos’ shares moved up after it reported stronger-than-expected earnings and revenues for the third quarter, extending the steady gains seen since early October. The good news is that the uptrend would continue in the following months, with experts predicting double-digit growth through the second half of 2023. The stock offers a buying opportunity that is worth trying, especially for long-term investors.

On Growth Path

The Virginia-based defense contractor landed multi-billion-dollar telecommunication and cloud computing contracts with NASA early this year. Overall, the value of total new deals has surpassed that of sales. However, considering the long-term nature of the contracts, it might take some time for the benefits to come.

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Leidos Holdings Q3 2022 Earnings Call Transcript

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Leidos provides mission-critical information security and IT solutions to large corporates and the military. Being a market leader, the company is poised to benefit significantly from the sharp increase in cybersecurity and defense spending.  

Financial Performance

In the third quarter of 2022, adjusted earnings beat estimates for the third time in a row but declined 12% year-over-year to $1.59 per share. Meanwhile, revenues increased by 4% to $3.61 billion and topped expectations. Higher revenues at the Defense Solutions and Civil divisions more than offset a decline in the Health segment. Cash from operations climbed to a record high of $748 million. Adjusted EBITDA was $372 million, which is down 8% from the year-ago quarter.

Encouraged by the impressive outcome, the management raised its full-year revenue outlook to the range of $14.2-$14.4 billion and narrowed the earnings per share guidance range to $6.20 to $6.40.

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Infographic: Lockheed Martin Q3 2022 earnings, revenue increase

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“Our third quarter results demonstrate the momentum in our business as we continue to report revenue growth at the upper end of our guidance across our diversified portfolio. In addition, our dedicated team delivered earnings in excess of our forecast and generated the highest quarterly cash flow from operations in our history. These results position us well to deliver on our full-year financial targets as we make the world safer, healthier, and more efficient,” said Leidos’ CEO Roger Krone at the earnings conference call.

Updates

Last month, Leidos’ board of directors declared a cash dividend of $0.36 per share, payable on December 30, 2022, to stockholders of record on December 15, 2022. Ahead of the earnings announcement, the company completed the acquisition of Cobham Special Mission, a provider of airborne border surveillance and search & rescue services to the Australian government. The deal is worth AUD305 million, and it marks a broader shift to defense hardware.

LDOS traded lower in the early hours of Friday after closing the previous session higher. The stock has gained about 17% since the beginning of the year and is trading slightly above its 52-week average.