A month has gone by since the last earnings report for Leidos (LDOS Quick QuoteLDOS - Free Report) . Shares have added about 5% 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 the most recent earnings report in order to get a better handle on the important drivers.

Leidos Holdings Beats on Q3 Earnings, Ups ’23 Sales View

Leidos Holdings’ third-quarter 2023 adjusted earnings of $2.03 per share beat the Zacks Consensus Estimate of $1.64 by 23.8%. The bottom line also increased 27.8% from $1.59 registered a year ago.

The year-over-year upside was driven by an improved business mix as well as increased volumes, higher incentive awards and recovery of prior expenditures in the medical examination business.

The company reported a GAAP loss of $2.91 per share, indicating a deterioration from the prior-year quarter’s reported earnings of $1.17.

Total Revenues

Leidos Holdings generated total revenues of $3,921 million in the reported quarter, which beat the Zacks Consensus Estimate of $3,779.6 million by 3.7%. The top line also improved 8.7% year over year, driven by increased demand across all customer segments, especially for digital modernization and medical examination solutions.

Backlog

The company recorded a total backlog of $38.04 billion, up from $34.15 billion recorded in the prior-year quarter. Of this amount, $9.05 billion was funded.

Operational Statistics

The cost of revenues increased 7.7% year over year to $3,334 million. The company reported an operating loss of $336 million against an operating income of $281 million in the year-ago quarter.

The operating loss margin was 8.6% against an operating income margin of 7.8% in the prior-year period.

Interest expenses totaled $53 million, up 6% year over year.

Segmental Performance

Defense Solutions: Net revenues in this segment improved 7% year over year to $2,221 million. The increase can be attributed to higher revenue growth from digital modernization, including the Navy Next-Generation Enterprise Network Recompete Service Management, Integration and Transport contract, as well as offensive and defensive hypersonics programs. The acquisition of Cobham Special Missions also benefitted this unit’s revenues.

The operating income increased to $147 million from the year-ago quarter’s level of $137 million. The reported operating margin was 6.6%.

Health: The segment recorded revenues of $776 million, up 17.8% year over year. This improvement can be attributed to higher levels of medical examinations and growth from the Social Security Administration Information Technology Support Services Contract II.

The operating income totaled $152 million compared with $91 million in the year-ago quarter. The reported operating margin was 19.6%.

Civil: Revenues in this segment amounted to $924 million, up 5.7% year over year. The upside was driven by higher volumes within the security products portfolio, infrastructure spending by the Federal Aviation Administration and increased demand for engineering support to commercial energy companies. 

This segment recorded an operating loss of $607 million against an operating income of $79 million in the year-ago period. The reported operating loss margin was 65.7%.

Financials

Leidos Holdings’ cash and cash equivalents as of Sep 29, 2023, were $750 million compared with $516 million as of Dec 30, 2022.

The long-term debt, net of the current portion, amounted to $4,667 million as of Sep 29, 2023, compared with $3,928 million as of Dec 30, 2022.

Net cash used by operating activities totaled $861 million compared with $867 million a year ago.

2023 Guidance

Leidos Holdings updated its 2023 view. The company now expects to generate adjusted earnings in the range of $6.80-$7.10 per share, up from the prior guided range of $6.40-$6.80. The Zacks Consensus Estimate for earnings is pegged at $6.64 per share, lower than the projected range.

LDOS now expects revenues in the range of $15.1-$15.3 billion, up from the earlier guidance of $14.9-$15.2 billion. The Zacks Consensus Estimate for revenues is pegged at $15.12 billion, lower than the midpoint of the guided range.

The company currently expects cash flow from operating activities at or more than $850 million compared with the prior guidance of $700 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

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 an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile 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 #2 (Buy). We expect an above average return from the stock in the next few months.

Performance of an Industry Player

Leidos belongs to the Zacks Aerospace - Defense industry. Another stock from the same industry, L3Harris (LHX Quick QuoteLHX - Free Report) , has gained 5.6% over the past month. More than a month has passed since the company reported results for the quarter ended September 2023.

L3Harris reported revenues of $4.92 billion in the last reported quarter, representing a year-over-year change of +15.8%. EPS of $3.19 for the same period compares with $3.26 a year ago.

For the current quarter, L3Harris is expected to post earnings of $3.30 per share, indicating a change of +0.9% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.3% over the last 30 days.

L3Harris has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.