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Why Is Leidos (LDOS) Up 2.6% Since Last Earnings Report?

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It has been about a month since the last earnings report for Leidos (LDOS - Free Report) . Shares have added about 2.6% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Leidos Holdings Q4 Earnings Top, Revenues Lag Estimates

Leidos Holdings, Inc.’s fourth-quarter 2018 adjusted earnings of $1.10 per share surpassed the Zacks Consensus Estimate of $1.07 by 2.8%. The bottom line also increased 26.4% from 87 cents per share registered a year ago.

Moreover, the company’s GAAP earnings of $1.25 per share surged 79% from the year-ago figure of 70 cents.

The year-over-year bottom-line improvement can be attributed to solid operating income growth.

For 2018, the company’s adjusted earnings came in at $4.38 per share, which exceeded the Zacks Consensus Estimate of $4.36 by 0.5%. The reported figure also improved 17.7% from the year-ago tally.



Total Revenues

Leidos Holdings generated total revenues of $2,647 million in the quarter under consideration, which missed the Zacks Consensus Estimate of $2,666 million by 0.7%. However, the top line improved 5.2% year over year. For 2018, the company’s total revenues amounted to $10.19 billion, which missed the Zacks Consensus Estimate of $10.21 billion by a whisker.

Nevertheless, the reported figure inched up 0.2% year over year.


At the end of 2018, the company’s backlog of signed business orders was $20.8 billion, of which $6.4 billion was funded.

Operational Statistics

In the reported quarter, total cost of revenues increased by 4.5% to $2,278 million. Operating income was $188 million compared with $101million in the year-ago period, primarily owing to decline in acquisitions, integration and restructuring costs, and lower amortization of intangible assets.

As a result, the operating margin expanded to 7.1% from 4% in the prior-year quarter.

Interest expenses summed $34 million compared with $35 million in the year-ago quarter.

Segmental Performance

Defense Solutions: Net revenues at this segment improved 3.6% to $1,265 million from the prior-year figure of $1,221 million. This upside can be primarily attributed to new awards that this segment received in the quarter under review.

However, the segment’s operating income declined to $81 million from the year-ago income of $85 million with the operating margin having contracted60 basis points (bps) to 6.4%.

Health: The segment recorded revenues of $497 million in the fourth quarter, up 12.7% year over year. The improvement was primarily driven by a net increase in program volumes.

While operating income improved 54.5% to $68 million, operating margin expanded 370 bps to 13.7%.

Civil: Revenues at this segment amounted to $885 million, up 3.6%. This uptick was mainly driven by expanded volumes from new programs.

Operating income also rose 10.7% to $93 million, while operating margin expanded 40 bps to 7%.


Cash and cash equivalents as of Dec 31, 2018, were $327 million compared with $390 million as of Dec 29, 2017. Net cash provided by operating activities in 2018 was $768 million compared with $526 million a year ago.

2019 Guidance

Leidos Holdings issued an outlook for 2019. The company currently expects its adjusted earnings to be in the range of $4.25-$4.60 per share on revenues of $10.5-$10.9 billion.

The Zacks Consensus Estimates for the company’s 2019 earnings and revenues are pegged at $4.71 and $10.63 billion, respectively. While the bottom line estimate surpasses the company provided guidance, the top line estimate lies near the mid-point of the company's provided outlook.

Moreover, the company projects its cash flow from operating activities to be $725 million, at 2019 end.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -10.41% due to these changes.

VGM Scores

Currently, Leidos has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.


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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