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Leidos (LDOS) Up 15.6% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Leidos (LDOS - Free Report) . Shares have added about 15.6% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important drivers.

Leidos Holdings Q3 Earnings Beat, 2020 EPS View Raised

Leidos Holdings third-quarter 2020 adjusted earnings of $1.47 per share beat the Zacks Consensus Estimate of $1.25 by 17.6%. Moreover, the bottom line grew 8.1% from $1.36 per share reported in the year-ago period.

Further, the company’s GAAP earnings of $1.13 per share improved from the year-ago quarter’s $1.11.

Total Revenues

Leidos Holdings generated total revenues of $3,242 million in the quarter under consideration, which exceeded the Zacks Consensus Estimate of $3,176 million by 2.1%. The top line also improved 7.9% year over year, backed by growth across all segments.

Backlog

The company’s backlog at the end of the quarter was $31.7 billion, of which $6.8 billion was funded.

Operational Statistics

Total cost of revenues in the quarter increased 13.2% to $3,242 million. Operating income totaled $258 million, up 3.6% from the year-ago quarter’s figure.

Adjusted operating income margin for the quarter was 8% compared with 8.8% in the prior-year quarter.

Interest expenses were $44 million compared with $28 million in the prior-year quarter.

Segmental Performance

Defense Solutions: Net revenues in this segment improved 22% year over year to $1,951 million in the third quarter. 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 $145 million from the year-ago quarter’s $107 million, while the operating margin expanded 70 basis points (bps) to 7.4%.

Health: The segment recorded revenues of $520 million in the third quarter, up 2.4% year over year. The improvement was primarily driven by a net increase in program volumes and program wins.

Operating income improved 19% to $75 million, while operating margin expanded 200 bps to 0.3%.

Civil: Revenues in this segment amounted to $771 million, up 5.2%. This uptick was primarily attributable to revenues related to the acquisition of the SD&A Businesses and program wins.

While operating income rose 25.6% to $54 million, operating margin expanded 110 bps to 10.3%.

Financials

Cash and cash equivalents as of Oct 2, 2020, were $512 million compared with $668 million as of Jan 3, 2020.

Long-term debt, net of current portion, amounted to $4,125 million as of Oct 2, 2020, compared with $2,925 million as of Jan 3, 2020.

Net cash provided by operating activities in the first nine months of 2020 was $1,386 million compared with $823 million provided in the first nine months of 2019.

2020 Guidance

Leidos Holdings revised its outlook for 2020. The company currently expects adjusted earnings in the $5.65-$5.85 per share range, up from $5.25-$5.55 anticipated earlier. The Zacks Consensus Estimate for 2020 earnings, pegged at $5.44 per share, is below the company’s projection.

Leidos Holdings currently expects revenues in the range of $12.3-$12.5 billion this year, from $12.2-$12.6 billion anticipated earlier. The Zacks Consensus Estimate for 2020 revenues, pegged at $12.41 billion, is above the midpoint of the company-guided range.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 8.91% due to these changes.

VGM Scores

At this time, Leidos has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 upward for the stock, and the magnitude of these revisions looks promising. 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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