Leidos (LDOS) vs. Peers: Assessing Q2 Performance and Future Growth in the Defense Contractors Sector

In the high-stakes arena of defense contracting, Leidos Holdings Inc. (LDOS) has carved out a unique position as a mid-sized player with a focus on IT services, cybersecurity, and space systems. As the U.S. Department of Defense (DoD) ramps up spending to address global security challenges, investors are scrutinizing how Leidos stacks up against industry giants like Lockheed Martin, Boeing, and Northrop Grumman. This analysis evaluates Leidos’ Q2 2025 performance, contrasts it with peers, and assesses its growth-at-a-reasonable-price (GARP) appeal amid macroeconomic tailwinds.

Q2 2025 Performance: Strong Margins, Modest Revenue Growth

Leidos reported Q2 2025 revenue of $4.25 billion, reflecting a 2.93% year-over-year increase [1]. While this growth lagged behind the sector average of 7.48% [2], the company’s profitability metrics told a different story. Leidos achieved a net income margin of 9.2%, outpacing its competitors’ average, and delivered an Adjusted EBITDA margin of 15.2%, up from 13.8% in the prior year [1]. Its non-GAAP diluted EPS of $3.21 surged 22% YoY, prompting the company to raise full-year guidance [4].

By contrast, peers like Lockheed Martin and Boeing showed mixed results. Lockheed Martin, the sector’s largest player by market share (23.3%), reported Q2 revenue of $18.16 billion but saw flat year-over-year growth and a plummeting operating margin of 4.1%—a stark decline from 11.9% in Q2 2024 [1]. Boeing, meanwhile, posted a 35% revenue jump to $22.7 billion, driven by its Commercial Airplanes segment, but its Defense, Space & Security segment only narrowly improved to a 1.7% operating margin from -15.2% in the prior year [3]. Northrop Grumman, a standout performer, exceeded expectations with 1.3% revenue growth and a robust 13.8% operating margin [3], underscoring its leadership in nuclear modernization and advanced defense tech.

GARP Appeal: Zacks Rank #2 and an Undervalued PEG

Leidos’ valuation metrics further strengthen its case as a GARP candidate. As of September 2025, the stock holds a Zacks Rank #2 (Buy) rating, reflecting strong earnings estimate revisions and improving fundamentals [1]. Its PEG ratio of 2.11 suggests the stock is undervalued relative to expected earnings growth, particularly when compared to peers like Lockheed Martin (PEG of 3.4) and Northrop Grumman (PEG of 2.8) [2]. Additionally, Leidos’ Value Style Score of B reinforces its appeal to income-focused investors [2].

This valuation edge is amplified by the company’s focus on high-margin IT and cybersecurity services, which align with DoD priorities. For instance, Leidos’ expertise in autonomous systems and data analytics positions it to capitalize on the $14.5 billion allocated to cyberspace activities in the FY2025 budget [2].

Macro Tailwinds: Defense Budgets and Strategic Priorities

The U.S. defense budget provides a critical tailwind for Leidos and its peers. The FY2025 budget of $849.8 billion includes $143.2 billion for RDT&E and $167.5 billion for procurement, with a clear emphasis on modernization and industrial base resilience [2]. While the budget remains below 2024 levels in real terms, the FYDP projects a gradual increase to $866 billion by 2029, with a 1.9% annual growth rate [5]. By 2039, the Congressional Budget Office (CBO) anticipates defense spending could reach $965 billion, driven by operational costs and technological advancements [2].

Leidos is particularly well-positioned to benefit from these trends. Its $11.1 billion in defense revenue (as of 2024) [1] and expertise in AI-driven solutions align with the DoD’s push to integrate emerging technologies. For example, the FY2026 budget justification highlights investments in additive manufacturing and advanced microcircuits—areas where Leidos has already demonstrated capability [1].

Conclusion: A Compelling Buy in a Diversified Portfolio

While Leidos’ revenue growth in Q2 2025 trailed its peers, its profitability, valuation, and strategic alignment with defense modernization efforts make it a compelling long-term investment. The company’s ability to maintain a 9.2% net margin in a competitive landscape, coupled with a Zacks Rank #2 and undervalued PEG ratio, positions it as a GARP play with downside protection. As defense budgets expand and cybersecurity threats evolve, Leidos’ specialized capabilities in IT and space systems are likely to drive sustained growth. For investors seeking a balance of value and innovation in the defense sector, LDOS offers an attractive entry point.

**Source:[1] Leidos Posts Strong Second Quarter Results and Raises ... [https://investors.leidos.com/news-releases/news-release-details/leidos-posts-strong-second-quarter-results-and-raises-full-year/][2] Leidos Holdings Inc Comparisons to its Competitors and ... [https://csimarket.com/stocks/compet_glance.php?code=LDOS][3] Boeing (BA) Q2 2025 Earnings Call Transcript [https://www.fool.com/earnings/call-transcripts/2025/08/06/boeing-ba-q2-2025-earnings-call-transcript/][4] Department of Defense Releases the President's Fiscal Year 2025 Defense Budget [https://www.defense.gov/News/Releases/Release/Article/3703410/department-of-defense-releases-the-presidents-fiscal-year-2025-defense-budget/][5] What Are Key Milestones and Decisions Affecting U.S. Defense Spending in 2025 [https://www.csis.org/analysis/what-are-key-milestones-and-decisions-affecting-us-defense-spending-2025]