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LDOS · Analyze
Date: 2026-07-14 | Price: $106.49 | Sector: Govt-IT / Defense Services | Verdict conviction: [7.5] — BUY Triggered by /watchlist-scan as the "better alternative" to BAH.
Snapshot
| Metric | Value |
|---|---|
| Price | $106.49 |
| FY2026 adj EPS guide | $12.10–$12.50 (raised Q1) |
| Fwd P/E | ~8.7x |
| TTM P/E | 14.0x |
| P/FCF | 9.5x |
| EV/EBITDA | 11.0x |
| Div yield | ~1.6% ($1.72) |
| ROE (2025) | 35.9% |
| ROIC | 16.1% |
| Backlog | $48.4B (record), TTM book-to-bill 1.1x |
1. Fundamentals — 🟢 Strong & improving
- Revenue $16.9B (2025), rev/sh $134 → guided $18.0–18.4B FY2026 (+7–9%). Q1 2026 rev $4.4B (+4%).
- FCF inflecting hard: FCF/sh $9.60 (2024) → $12.70 (2025); Q1 FCF margin 6.1% vs 0.8% yr-ago. P/FCF 9.5x.
- Margins rising: op margin 10.9% (2024) → 12.2% (2025) — highest in the govt-IT peer set (vs BAH ~11%, CACI, SAIC). EBITDA margin 12.6% → 13.9%.
- Shares: 131.2M → 126.4M (−3.6%/yr buyback) — per-share tailwind. Div payout only 14% (lots of room).
- Balance sheet: the one caveat — acquisitive, so tangible book is negative (−$14.36/sh, all goodwill) and it carries ~$4–5B net debt. But EBITDA/interest coverage is comfortable and leverage is trending down as FCF ramps.
2. Moat — 🟢 Broad + scale (the BAH upgrade thesis)
Same security-clearance barrier as Booz Allen (cleared workforce, months-long clearance process, incumbency on recompetes) but Leidos brings more scale ($17–18B rev vs BAH's ~$12B), the highest margins in the group, and a more diversified book (Health, National Security, Defense, Civil, Commercial) — less single-agency concentration than BAH's DOGE-exposed Civil segment.
Adversarial test: a well-funded rival can't replicate a cleared, incumbent workforce on a mission-critical program overnight; recompete win-rates in this industry run high. The real threat is the customer (US govt) itself — budget/DOGE-driven procurement slowdowns. Leidos's answer: it raised guidance into that environment (Q1 2026), where BAH is guiding FY27 as a revenue-decline "transition year." That divergence is the whole reason LDOS ranks above BAH.
Disruption: AI is a tailwind, not a threat, for a systems-integrator embedded in classified programs — it's the delivery mechanism, and cleared-environment AI work is a moat-widener.
3. Valuation — cheap on every lens
| Model | Output |
|---|---|
| Fwd P/E | 8.7x vs defense-services median ~14–17x |
| FCF-based | FCF/sh ~$12.70, 11–13x → $140–165 |
| Graham √(22.5×11.31×36.30) | ~$96 (understated — penalizes goodwill-heavy book) |
| Bogle | 1.6% yield + ~10% EPS growth + re-rating optionality |
Fair value range: $140–170 (base ~$150). Current $106.49 = ~30–40% upside while paying you to wait. Re-rating catalyst = continued guidance raises proving the DOGE fear is overdone.
4. Sentiment — 🟢 positive
Q1 2026 beat + raised full-year guidance (Apr); +35% stock TTM (vs BAH −23%, SAIC −5%). Record backlog. No leadership/accounting flags.
Verdict — BUY [7.5]
Great business, priced cheap = the value quadrant. A higher-margin, faster-growing, better-diversified clearance-moat compounder than BAH, at ~8.7x forward earnings with a record backlog, 36% ROE, and a shrinking share count. The market is pricing all govt-IT names for a DOGE budget winter; Leidos is the one raising guidance through it.
- Entry: attractive at current $106; strong buy <$100, add to $115. Trim $160+.
- Size: core-quality candidate for Beta — can size larger than a typical value play given the raised guidance and buyback support. Pairs as the preferred expression over BAH (don't need both).
- Key risks: (1) US govt budget/DOGE cuts hitting Civil/Health harder than guided; (2) acquisitive balance sheet / negative tangible book — watch leverage; (3) a large program loss or recompete miss.
- Thesis break: FY2026 guidance cut, TTM book-to-bill falls below 1.0x for 2 quarters, or FCF margin rolls back toward ~1%.
Sources: roic.ai (profitability, per-share, valuation), Leidos Q1 2026 release, peer valuation/moat. Public.com quote.