It has been about a month since the last earnings report for Leidos (
LDOS Quick Quote LDOS - Free Report) . Shares have added about 5% 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 Beats on Q3 Earnings, Ups 2019 View
Leidos Holdings’ third-quarter 2019 adjusted earnings of $1.36 per share surpassed the Zacks Consensus Estimate of $1.20 by 13.3%. The bottom line also increased 19.3% from $1.14 a year ago. This upside can be attributed to solid revenues and operating income.
However, the company’s GAAP earnings of $1.11 per share declined from 96 cents in the year-ago quarter.
Leidos Holdings generated total revenues of $2,835 million in the quarter, which exceeded the Zacks Consensus Estimate of $2739 million by 3.5%. The top line also improved 10.1% year over year, backed by growth across all segments.
At the end of the reported quarter, the company’s total backlog was $23.9 billion compared with $20.8 billion as of Dec 28, 2018. Of this, $5.7 billion was funded.
Total cost of revenues in the third quarter increased 12.7% to $2,450 million. Operating income totaled $249 million, compared with $203 million in the year-ago period. This upside was driven by a decrease in selling, general and administrative expenses along with a decline in integration and restructuring costs.
As a result, operating margin expanded to 8.8% from 7.9% in the year-ago quarter.
Interest expenses were $28 million compared with $35 million in the prior-year quarter.
Segmental Performance Defense Solutions: Net revenues at this segment increased 8.3% to $1,354 million from the prior-year quarter’s $1,250 million. This improvement can be primarily attributed to new awards received by the segment during the quarter under review along with a net increase in program volumes.
Also, the segment’s operating income rose 4.5% to $93 million from the year-ago quarter’s income of $89 million. Operating margin contracted 20 basis points (bps) to 6.9%.
Health: The segment recorded revenues of $508 million in the third quarter, up 14.4% year over year. The uptick was primarily driven by a net increase in program volumes and new awards.
Operating income increased 21.1% to $63 million, while operating margin expanded 70 bps to 12.4%.
Civil: Revenues at this segment amounted to $973 million, up 10.4% year over year. New awards and a net increase in program volumes led to the upside.
While operating income declined 38% to $57 million, operating margin contracted 450 bps to 5.9%.
Cash and cash equivalents as of Sep 27, 2019, were $635 million compared with $327 million as of Dec 28, 2018. Net cash provided by operating activities at the end of third-quarter 2019 amounted to $349 million compared with $371 million a year ago.
Leidos Holdings raised its guidance for 2019. The company currently expects adjusted earnings of $4.90-$5.10, up from $4.50-$4.75 anticipated earlier. The Zacks Consensus Estimate for 2019 earnings is pegged at $4.72, below the company’s projected figure.
Moreover, the company expects 2019 revenues of $10.90-$11 billion compared with the earlier guidance of $10.65-$10.95 billion. The Zacks Consensus Estimate for revenues stands at $10.82 billion, below the company’s guided range.
Management expects adjusted EBITDA margin of 10.2-10.4%, up from the previous guidance of 9.9-10.1%.
Cash flow from operating activities is expected to be at or above $875 million, up from the previous guidance of $825 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 9.61% due to these changes.
At this time, Leidos has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, 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.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Leidos has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.