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Leidos (LDOS) Up 2.1% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Leidos (LDOS - Free Report) . Shares have added about 2.1% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Leidos due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Leidos Holdings Q2 Earnings Beat, 2020 EPS View Up

Leidos Holdings second-quarter 2020 adjusted earnings of $1.55 per share beat the Zacks Consensus Estimate of $1.07 by 44.9%. Moreover, the bottom line grew 33.6% from $1.16 per share registered in the year-ago period.

Further, the company’s GAAP earnings of $1.06 per share improved from the year-ago quarter’s 93 cents.

Total Revenues

Leidos Holdings generated total revenues of $2,914 million in the quarter under consideration, which missed the Zacks Consensus Estimate of $3,042 million by 4.2%. The top line however improved 6.8% year over year, backed by growth across all segments, except Health.

Backlog

At the end of the reported quarter, the company’s total backlog was $30.7 billion compared with $28.3 billion at first-quarter 2020 end. Of this total backlog, $7 billion was funded.

Operational Statistics

Total cost of revenues in the quarter increased 7.8% to $2,531 million. Operating income totaled $249 million, up 18.6% from the year-ago quarter’s figure.

Adjusted operating income margin for the quarter was 11.2% compared with 9.4% in the prior-year quarter, primarily attributable to a net gain recognized upon the receipt of proceeds related to the VirnetX legal matter and program wins.

Interest expenses were $41 million compared with $33 million in the prior-year quarter.

Segmental Performance

Defense Solutions: Net revenues at this segment improved 12.6% to $1,757 million from the prior-year quarter’s $1,560 million. This upside can be primarily attributed to revenues related to the acquisition of Dynetics, program wins and a net increase in program volumes.

Moreover, the segment’s operating income improved to $119 million from the year-ago quarter’s $113 million while the operating margin contracted 40 basis points (bps) to 6.8%.

Health: The segment recorded revenues of $399 million in the second quarter, down 20.4% year over year. The improvement was primarily driven by a net increase in program volumes, program wins and the impact of the acquisition of IMX Medical Management Services, Inc.

Operating income slumped 98.4% to $1 million, while operating margin contracted 1190 bps to 0.3%.

Civil: Revenues at this segment amounted to $758 million, up 13.6%. This uptick was primarily attributable to program wins and a net increase in program volumes.

While operating income rose 39.3% to $78 million, operating margin expanded 190 bps to 10.3%.

Financials

Cash and cash equivalents, as of Jul 3, 2020, was $588 million compared with $668 million, as of Jan 3, 2020.

Long-term debt, net of current portion, amounted to $4,148 million, as of Apr 3, 2020, compared with $2,925 million, as of Jan 3, 2020.

Net cash provided by operating activities in the second quarter of 2020 was $794 million compared with $474 million a year ago.

2020 Guidance

Leidos Holdings revised its outlook for 2020. The company currently expects adjusted earnings in the $5.25-$5.55 range, up from $5.00-$5.30 per share anticipated earlier. The Zacks Consensus Estimate for 2020 earnings, pegged at $5.24 per share, is below the company’s projection.

Leidos Holdings currently expects revenues in the range of $12.2-$12.6 billion this year, down from $12.5-$12.9 billion anticipated earlier. The Zacks Consensus Estimate for 2020 revenues, pegged at $12.67 billion, is above the company-guided range.

The company’s cash flow from operating activities is now anticipated to be at or above $1.2 billion compared with $1 billion projected earlier.


 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.06% due to these changes.

VGM Scores

Currently, Leidos has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Leidos has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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