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Why Is Leidos (LDOS) Up 15% Since Last Earnings Report?

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A month has gone by since the last earnings report for Leidos (LDOS - Free Report) . Shares have added about 15% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Leidos Holdings Q4 Earnings Miss, Revenues Rise Y/Y

Leidos Holdings’ fourth-quarter 2021 adjusted earnings of $1.56 per share missed the Zacks Consensus Estimate of $1.60 by 2.5%. The bottom line also declined 4.3% from $1.63 per share registered a year ago.

The company reported GAAP earnings of $1.23 per share, which deteriorated from the year-ago quarter’s earnings of $1.37.

The company reported adjusted earnings of $6.62 for full-year 2021, which increased from $5.83 reported in 2020. The full-year earnings missed the Zacks Consensus Estimate of $6.63 per share by a whisker.

Total Revenues

Leidos Holdings generated total revenues of $3,491 million in the quarter under consideration, missing the Zacks Consensus Estimate of $3,506 million by 0.4%.

The top line however improved 7.3% year over year. This increase in revenues was primarily attributable to growth from its Defense Solutions and Health segments.

In 2021, Leidos Holdings generated revenues worth $13.74 billion, up 11.7% from the year-ago figure. Full-year sales missed the Zacks Consensus Estimate of $13.75 billion.

Backlog

At the end of 2021, the company’s total backlog was $34.46 billion, up 8% from 2020. Of this, $7.45 billion was funded.

Operational Statistics

The total cost of revenues in the quarter increased 8% to $2,983 million.

Operating income totaled $270 million compared with the year-ago quarter’s income of $290 million.

The operating income margin for the quarter was 7.7% compared with 9.2% in the prior-year quarter.

Interest expenses were $46 million, flat year over year.

Segmental Performance

Defense Solutions: Net revenues in this segment improved 6.9% year over year to $2,061 million in the fourth quarter. This upside can be primarily attributed to the ramp-up of the Navy NGEN-R SMIT contract and other recent contract wins.

The segment’s operating income declined to $140 million from the year-ago quarter’s $147 million, with the operating margin being 6.8%.

Health: The segment recorded revenues of $630 million in the fourth quarter, which soared 22.8% year over year. The uptick was driven by the increase in medical examinations after the pause from the COVID-19 pandemic as well as increased volumes on the Defense Healthcare Management System Modernization (DHMSM) program. Also, the ramp-up of new programs such as the Military and Family Life Counseling (MFLC) program contributed to the unit’s top line.

Operating income was $103 million compared with the year-ago quarter’s income of $86 million. The operating margin came in at 16.3%.

Civil: Revenues in this segment amounted to $800 million, down 1.4%. The revenue decline was on account of lower deliveries of security products.

While operating income improved from $61 million to $89 million, the adjusted operating margin was 7.6%.

Financials

Cash and cash equivalents as of Dec 31, 2021, was $727 million compared with $524 million as of Jan 1, 2021.

Long-term debt, net of current portion, amounted to $4,593 million as of Dec 31, 2021 compared with $4,644 million as of Jan 1, 2021.

Net cash provided by operating activities in 2021 was $1,031 million compared with $1,334 million a year ago.

2022 Guidance

Leidos Holdings offered its 2022 view. The company currently expects to generate adjusted earnings in the range of $6.10-$6.50 per share. The Zacks Consensus Estimate for 2022 earnings, pegged at $6.80 per share, is higher than the company’s new view.

Leidos Holdings currently expects its revenues to be in the range of $13.9-$14.3 billion. The Zacks Consensus Estimate for 2022 revenues, pegged at $14.41 billion, is above the guided range.

The company’s cash flow from operating activities is anticipated to be at or above $1 billion.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -7.32% due to these changes.

VGM Scores

Currently, Leidos has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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 this revision indicates a downward shift. It's no surprise Leidos has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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