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Will Higher Component Price Hurt Leidos (LDOS) in Q2 Earnings?

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Leidos Holdings, Inc. (LDOS - Free Report) is slated to report second-quarter 2023 results on Aug 1, before market open.   

The company has a four-quarter earnings surprise of 2.65%, on average. With all segments expected to report strong sales growth, the top line is likely to have witnessed a robust sales increase in the second quarter.

Defense Solutions’ Revenues

Contract wins in the previous quarters and a favorable impact of LDOS’ acquisition of Cobham Aviation Services Australia’s Special Mission business might have boosted the Defense Solutions segment’s revenues in the soon-to-be-reported quarter.

The Zacks Consensus Estimate for the segment’s revenues is currently pegged at $2,117.4 million, indicating growth of 3.2% year over year.

Leidos Holdings, Inc. Price and EPS Surprise

Leidos Holdings, Inc. Price and EPS Surprise

Leidos Holdings, Inc. price-eps-surprise | Leidos Holdings, Inc. Quote

Civil

A ramp-up on the NASA AEGIS program might have continued to contribute to this unit’s second-quarter performance. Increased demand from LDOS’ commercial energy businesses is likely to have benefited the segment’s revenues.

The Zacks Consensus Estimate for the Civil segment’s second-quarter revenues is pegged at $892.5 million, indicating a year-over-year improvement of 4.1%.

Health

Increased volumes from the Defense Healthcare Management System Modernization program, along with growth in the Social Security Administration IT work, might have positively contributed to the segment’s revenues in the soon-to-be-reported quarter.

The Zacks Consensus Estimate for Health’s second-quarter revenues is pegged at $710.4 million, implying growth of 3.3% from the year-ago quarter’s reported number.

Second-Quarter Estimates

With the anticipated improvement in sales across all its segments, we expect an improvement in Leidos’ overall top-line performance.

The Zacks Consensus Estimate for sales is pegged at $3.73 billion, indicating an increase of 3.6% from the prior-year quarter’s reported figure.

A strong top line as well as expected foreign exchange tailwinds are likely to have aided Leidos’ bottom-line performance. However, supply chain disruption-induced higher component prices might have had adversely impacted its earnings in the soon-to-be-reported quarter.   

The Zacks Consensus Estimate for second-quarter earnings is pegged at $1.56 per share, down 1.9% year over year.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for Leidos this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. However, that is not the case here.

Leidos currently has an Earnings ESP of -0.69% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Below are three defense stocks that you may consider as these have the right combination of elements to post an earnings beat this reporting cycle.

Huntington Ingalls Industries (HII - Free Report) is expected to release second-quarter results on Aug 3. HII has an Earnings ESP of +0.48% and a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntington Ingalls delivered a four-quarter average earnings surprise of 8.09%. The consensus estimate for earnings is pegged at $3.14 per share, while that for sales is pinned at $2.73 billion.

L3Harris Technologies (LHX - Free Report) is scheduled to release second-quarter results on Jul 26. LHX has an Earnings ESP of +0.85% and a Zacks Rank #3 at present.

L3Harris delivered a four-quarter negative earnings surprise of 0.37%, on average. The Zacks Consensus Estimate for LHX’s earnings is pegged at $2.94 per share, while that for sales is pinned at $4.36 billion.

Embraer SA (ERJ - Free Report) is expected to report second-quarter results on Aug 14. ERJ has an Earnings ESP of +25% and a Zacks Rank #3 at present.

Embraer delivered a four-quarter average negative earnings surprise of 253.33%. The consensus mark for ERJ’s earnings is pegged at 12 cents per share, while that for sales is pinned at $1.16 billion.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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