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Leidos (LDOS) Up 2.7% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Leidos (LDOS - Free Report) . Shares have added about 2.7% 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 drivers.

Leidos Holdings' Q1 Earnings Top, 2019 EPS View Up

Leidos Holdings first-quarter 2019 adjusted earnings of $1.13 per share surpassed the Zacks Consensus Estimate of 99 cents by 14.1%. The bottom line also increased 9.7% from $1.03 per share registered a year ago.

Moreover, the company’s GAAP earnings of $1.29 per share surged 95.5% from the year-ago figure of 66 cents.

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

Total Revenues

Leidos Holdings generated total revenues of $2,577 million in the quarter under consideration, which exceeded the Zacks Consensus Estimate of $2,519 million by 2.3%. The top line also improved 5.5% year over year backed by growth across all the segments.

Backlog

At the end of the reported quarter, the company’s total backlog was $21.5 billion compared with $20.8 billion at 2018 end. Of this total backlog, $6.1 billion was funded.

Operational Statistics

Total cost of revenues in the quarter under review increased by 6.5% to $2,221 million. Operating income totaled $192 million compared with $159 million in the year-ago period. This upside was driven by decreases in integration and restructuring costs, lower amortization of intangible assets and an asset impairment charge that Leidos incurred in the prior-year quarter.

As a result, the operating margin expanded to 7.5% from 6.5% in the year-ago quarter.

Interest expenses summed $38 million compared with $34 million in the prior-year quarter.

Segmental Performance

Defense Solutions: Net revenues at this segment improved 6.6% to $1,267 million from the prior-year figure of $1,189 million. This upside can be primarily attributed to new awards that the segment received in the quarter under review. Also, net increase in program volumes contributed to the top line.

However, the segment’s operating income slipped to $89 million from the year-ago income of $90 million, with the operating margin having contracted 60 basis points (bps) to 7%.

Health: The segment recorded revenues of $463 million in the first quarter, up 8.9% year over year. The improvement was primarily driven by a net increase in program volumes and new awards.

Operating income improved 7.1% to $45 million, while operating margin contracted 20 bps to 9.7.7%.

Civil: Revenues at this segment amounted to $847 million, up 2.2%. This uptick was mainly on account of new awards.

While operating income rose 5.8% to $73 million, operating margin expanded 30 bps to 8.6%.

Financials

Cash and cash equivalents as of Mar 29, 2019, were $536 million compared with $327 million as of Dec 28, 2018. Net cash provided by operating activities in the first quarter of 2019 was $288 million compared with $22 million a year ago.

2019 Guidance

Leidos Holdings partially revised its outlook for 2019. The company currently expects its adjusted earnings to be in the $4.30-$4.65 range, up from $4.25-$4.60 anticipated earlier. The Zacks Consensus Estimates for 2019 earnings, pegged at $4.53, is above the mid-point of the company’s projected view.

However, Leidos Holdings continues to expect revenues in the range of $10.5-$10.9 billion this year. The Zacks Consensus Estimates for 2019 revenues, pegged at $10.70 billion, is in line with the mid-point of the company guided range.

The company’s cash flow from operating activities is anticipated to be around $825 million at 2019 end, up from prior guidance of $725 million.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months.

VGM Scores

Currently, Leidos has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% 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

Leidos has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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