Leidos Holdings Inc (LDOS)

Conclusion

Leidos Holdings Inc provides services and solutions for government and commercial customers. Its work spans national security and digital modernisation, health and civil programmes such as air traffic control and managed health services, and commercial and international businesses including power grid engineering and security screening. At 135.76 USD on 9 November 2026, the market capitalisation is 16.56 billion USD.

The verdict is undervalued. The price-to-earnings ratio of 11.6 compares with a ten-year median of 20.3, and the enterprise value to EBITDA of 9.5 compares with a median of 13.7. The DCF gives 313.15 USD per share, and the fair value from historical multiples is 218.55 USD. The fair value band runs from 212.68 to 319.02 USD, with a midpoint of 265.85 USD and a margin of safety of 95.8% at the current price. The reverse DCF implies growth of -5.4% a year, against a five-year revenue growth rate of 6.9% and a five-year free cash flow per share growth rate of 8.95%.

What holds the case up is the return on invested capital of 14.3% against a WACC of 7.4%, free cash flow conversion of 1.37 over the last twelve months, and a Piotroski score of 8 out of 9. What would break it is the estimate for next year's earnings, which implies a change of -3.9%, the downward revision of next year's estimates by -6.3% over 90 days, and net debt to EBITDA of 2.50.

Financial health

Colour: green, held up by an Altman Z-score of 3.18 in the safe zone, interest coverage of 8.67 and a current ratio of 1.60, while net debt to EBITDA of 2.50 is only neutral. The quick ratio is 1.13 and debt to equity is 1.27. The Altman model was designed for manufacturers, so its reading is an approximate guide for a services company. Insolvency risk: low, about 0.6% by the estimate of the Ohlson model over one to two years. The company's interest expense is reported, so the interest coverage figure is usable without adjustment.

Earnings quality

Colour: green, held up by free cash flow conversion of 1.37 on a trailing basis and 1.29 over five years, a Piotroski score of 8 out of 9, and a five-year share count change of -1.66% a year, which reflects buybacks. Accruals are negative at -2.2%, and stock-based compensation is 0.57% of revenue, leaving free cash flow after it at 1.86 billion USD. The Beneish M-score is not available. Leidos beat earnings estimates in all 8 of the last eight quarters, with an average surprise of 12.6%. Current-year estimates rose 2.2% over 90 days, while next-year estimates fell 6.3%.

Profitability

Colour: green, held up by a return on invested capital of 14.3% against a WACC of 7.4%, a gap the assessment reads as value creation with a spread of 6.8% given in the data. Margins sit above their ten-year medians: gross margin 17.3% against 14.5%, operating margin 11.4% against 7.8%, and net margin 8.0% against 5.3%. The five-year median return on invested capital is 9.5%. Return on equity of 27.6% is flattered by leverage, since the equity multiplier of 2.74 and a net margin of 8.5% in the 2025 DuPont split show that asset turnover of 1.27 contributes as much as profitability.

Growth

Colour: yellow, because revenue growth is modest while earnings growth is strong. Revenue compounded at 6.1% over three years, 6.9% over five and 12.9% over ten, and it grew in all 10 of the last ten years. Earnings per share compounded at 30.4% over three years, 20.3% over five and 12.4% over ten. The weak point is the next-year earnings estimate, which implies a change of -3.9%. Free cash flow per share compounded at 25.5% over three years but only 8.95% over five.

Valuation

Colour: green, held up by the verdict of undervalued and a margin of safety of 95.8%. Against their ten-year medians, the price-to-earnings ratio of 11.6 (median 20.3) is at a discount of 42.9%, enterprise value to EBITDA of 9.5 (median 13.7) at 31.0%, and price to free cash flow of 8.5 (median 14.4) at 41.2%. The DCF gives 313.15 USD per share at a discount rate of 8.9%, with 57.2% of value in the terminal value. It assumes growth of 6.9% and a terminal growth rate of 2.5%. The reverse DCF implies -5.4% growth. The dividend yield is 1.3%, with 11.1% of free cash flow paid out.

Risks

The main risk is the earnings outlook: a next-year estimate that implies -3.9% growth, together with downward revisions of 6.3%, suggests the market may expect weaker profits than the five-year record shows. Net debt to EBITDA of 2.50 would limit flexibility if earnings fell. A weaker return on invested capital, currently 14.3%, would reduce the value the business creates above its cost of capital. The DCF depends heavily on the terminal value, which accounts for 57.2% of its value. The Beneish M-score is not available. The analysis does not include a debt maturity schedule or revenue by segment, so refinancing risk and the mix of growth cannot be assessed.