LDOS: Strong Health And Civil Margins Will Support Future Premium Multiple

Analysts have raised their price target on Leidos Holdings to approximately $218.08 per share from about $218.08. This reflects slightly stronger expectations for revenue growth and sustained margins, supported by robust book to bill trends, a sizable near term pipeline, and upside earnings performance with higher profitability guidance into 2025.

Analyst Commentary

Bullish analysts are broadly constructive on Leidos Holdings, citing a combination of solid execution, expanding margins, and a healthy demand backdrop that supports higher valuation multiples. Recent target price increases reflect confidence that the company can translate its current momentum into durable earnings growth.

Analysts highlight that the company is increasingly viewed as a premium asset within the government services space, supported by a diversified portfolio and strong competitive positioning in both Health & Civil and national security oriented work. Upside quarterly results and raised profitability guidance into 2025 are seen as key proof points that management is executing effectively against its strategy.

Bullish Takeaways

Bullish analysts point to recent earnings outperformance, driven in large part by stronger Health and Civil margins, as evidence that Leidos can sustain higher profitability levels than previously assumed. This is viewed as supporting upward revisions to earnings estimates and price targets.
The 1.3x book to bill ratio and approximately $69B near term pipeline are viewed as clear indicators of robust demand. Analysts see this as providing strong revenue visibility and reinforcing the case for multiple expansion as backlog converts to higher margin revenue.
Leidos's diversified and well positioned portfolio is seen as justifying a premium valuation versus peers in the government services group. There is particular enthusiasm around potential funding opportunities linked to large legislative spending packages.
Upside Q3 results and raised 2025 profitability guidance are interpreted as signs that management is executing ahead of plan. Analysts note that this, in turn, supports more optimistic long term growth and free cash flow assumptions in their models.

Bearish Takeaways

Bearish analysts caution that near term valuation already embeds a significant portion of the recent operational improvement. They argue this creates less room for error if margins normalize or program ramps are slower than expected.
Ongoing government funding uncertainty and shutdown risk are seen as key overhangs that could delay awards, slow the conversion of the $69B pipeline, and introduce volatility to 2025 revenue and earnings trajectories.
Some analysts highlight that outsized dependence on U.S. federal budgets and legislative allocations leaves Leidos exposed to policy shifts, which could pressure growth expectations or constrain future pricing power.
There is concern that executing on such a large and complex pipeline, while maintaining elevated margin levels, may prove challenging over multiple years. This raises the risk that current profitability guidance and long term growth targets may be difficult to consistently achieve.

What's in the News

Reaffirmed 2025 revenue guidance at $17.0 billion to $17.25 billion, underscoring confidence in the current growth trajectory (Corporate Guidance).
Completed a major share repurchase tranche, buying back over 559,000 shares in the latest period and 16.8 million shares in total since 2022, signaling ongoing capital return to shareholders (Buyback Tranche Update).
Increased its quarterly dividend to $0.43 per share from $0.40, marking another step up in shareholder payouts (Dividend Increases).
Announced multiple strategic technology partnerships, including new AI driven cyber defense with VAST Data Federal and NVIDIA, and an AI powered information operations platform, Imperium, developed with VML (Strategic Alliances and Product Related Announcements).
Expanded mission critical client work across border security, aviation, clean energy, and space, including new collaborations with CargoSeer, Quadridox, Hawai'i Energy programs, Kazaeronavigatsia, and Starlab Space (Client Announcements).

Valuation Changes

Fair Value Estimate remained effectively unchanged, moving marginally from approximately $218.08 to $218.08 per share.
Discount Rate decreased slightly from about 7.56 percent to roughly 7.55 percent, implying a modest reduction in perceived risk or required return.
Revenue Growth rose slightly from around 2.56 percent to approximately 2.59 percent, reflecting a marginally more constructive outlook on top line expansion.
Net Profit Margin eased fractionally from about 8.66 percent to roughly 8.65 percent, indicating minimal change in long run profitability assumptions.
Future P/E slipped slightly from roughly 19.77x to about 19.77x, suggesting a near stable valuation multiple on forward earnings.

Expansion in government-funded projects and rising demand for advanced digital solutions are driving growth in high-margin, premium contracts across key sectors.
Focus on AI integration, successful acquisitions, and recurring service-based revenues enhances operational efficiency, margin durability, and predictability of future earnings.
Heavy reliance on government contracts, acquisition risks, and industry-wide margin pressures make Leidos vulnerable to revenue swings, integration challenges, and intensified competition.

Catalysts

About Leidos Holdings

Provides services and solutions for government and commercial customers in the United States and internationally.What are the underlying business or industry changes driving this perspective?

Leidos is positioned to benefit from increased, multi-year government funding focused on national security, defense modernization, border protection, and infrastructure, particularly through the One Big Beautiful Bill and related initiatives (e.g., FAA air traffic modernization, Golden Dome, maritime autonomy), which are expected to drive robust future revenue growth across core projects.
Accelerating customer demand for digital modernization, AI-powered solutions, and autonomous systems-in defense, healthcare, and intelligence-plays to Leidos' strengths and is leading to higher-quality, higher-margin contracts that improve net margins, as these capabilities command premium pricing and are in areas of secular growth.
Leidos' continued integration of advanced ai/automation within internal operations and customer offerings is yielding substantial sustained improvement in efficiency (lower indirect costs, faster product delivery), which is expected to support durable margin expansion and enhanced earnings.
The successful integration of recent acquisitions (e.g., Kudu Dynamics, Dynetics) has unlocked access to $400M+ in pipeline opportunities and improved win probability on ~$2B in bids, supporting incremental revenue and increased earnings accretion over the mid-term.
The business mix is shifting towards recurring, service-based and software-driven revenue streams (logistics, health IT, cloud-native platforms), enhancing earnings visibility and stability, which is expected to support higher long-term valuation multiples as the market recognizes improved predictability in cash flow and profit growth.

Leidos Holdings Earnings and Revenue Growth

Leidos Holdings Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Leidos Holdings's revenue will grow by 3.0% annually over the next 3 years.
Analysts assume that profit margins will shrink from 8.2% today to 8.1% in 3 years time.
Analysts expect earnings to reach $1.5 billion (and earnings per share of $12.47) by about September 2028, up from $1.4 billion today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.9x on those 2028 earnings, up from 16.4x today. This future PE is lower than the current PE for the US Professional Services industry at 26.3x.
Analysts expect the number of shares outstanding to decline by 3.85% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 7.45%, as per the Simply Wall St company report.

Leidos Holdings Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Overreliance on U.S. federal government funding-especially for defense, homeland security, and health contracts-exposes Leidos to political and fiscal risks; changes in administration priorities or reductions in government spending could cause unpredictable revenue swings and slow top-line growth.
Heightened industry competition, including aggressive moves by large peers and non-traditional tech firms for AI-driven, outcome-based contracts, raises the risk of increased market share pressure and margin compression as procurement processes consolidate and government clients favor commercial solutions.
Ongoing dependence on acquisitions (e.g., recent Kudu integration, prior Dynetics challenges) introduces integration risk; failure to realize anticipated synergies or manage operational complexity could erode net margins and dampen sustainable earnings growth.
Accelerating automation and internal AI adoption-aimed at driving efficiency and reducing labor costs-may reduce the need for traditional manpower-based services over time, potentially leading to a decline in core service demand, revenue instability, and uncertainty in the sustainability of recent margin gains.
Industry-wide price pressure and potential commoditization of IT and engineering services, as governments pursue cost efficiencies (e.g., "DOGE" initiatives, contract scope reductions, and low-margin hardware/software pass-throughs), could squeeze Leidos' profitability and limit future net margin expansion despite recent cost-saving measures.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $190.154 for Leidos Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $210.0, and the most bearish reporting a price target of just $164.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $18.6 billion, earnings will come to $1.5 billion, and it would be trading on a PE ratio of 17.9x, assuming you use a discount rate of 7.4%.
Given the current share price of $179.03, the analyst price target of $190.15 is 5.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

Have other thoughts on Leidos Holdings?

Create your own narrative on this stock, and estimate its Fair Value using our Valuator tool.

Create Narrative

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

LDOS: Federal Health And Security Spending Will Drive Steady Performance Ahead