Leidos Receives Buy Upgrade from Jefferies Analyst, Raises Price Target to $205

Leidos (LDOS) has received a buy upgrade from Jefferies analyst Sheila Kahyaoglu, with a new price target of $205, up from $185. The upgrade reflects potential growth opportunities in Department of Defense initiatives and advancements in artificial intelligence. The company has demonstrated robust financial health, with 10.6% revenue growth over the past year and a solid balance sheet. Valuation metrics suggest a reasonable valuation relative to earnings.

Leidos Holdings (LDOS) has received a buy upgrade from Jefferies analyst Sheila Kahyaoglu, with a new price target of $205, up from $185. The upgrade reflects potential growth opportunities in Department of Defense initiatives and advancements in artificial intelligence. The company has demonstrated robust financial health, with 10.6% revenue growth over the past year and a solid balance sheet. Valuation metrics suggest a reasonable valuation relative to earnings.

The upgrade by Jefferies is based on several factors, including the company's exposure to U.S. government priorities such as the Federal Aviation Administration (FAA), border surveillance, and defense modernization, which account for roughly half of its revenue [1]. Recent wins, such as a multi-billion-dollar classified program secured in July, further bolster confidence in the company's second-half setup [2]. Additionally, Leidos is expected to benefit from artificial intelligence-driven efficiencies, with the firm estimating $30 million in cost savings in 2025 from reduced labor hours [1].

The brokerage also highlighted the role of higher VA incentive fees and cost-out initiatives in supporting the company's updated full-year margin guidance in the mid-13% range, up from 12.9% in 2024 [1]. Leidos raised its EPS guidance by 7%, though the implied second-half revenue growth slowed to ~1% from 5% in the first half. Jefferies called the guidance conservative, with a backlog-to-book ratio of 1.3x and upside from programs like DISA DES and IFPC Increment 2 [1].

Looking ahead, Jefferies expects organic growth to re-accelerate to 5% in 2026, driven by the U.S. Reconciliation Bill, which earmarks $13 billion in addressable funding across areas where Leidos is well positioned [1]. EPS is forecast at $11.85 for 2026, ahead of the Street. Jefferies estimates each 10-basis-point margin increase adds about $0.15 to EPS, reinforcing the upside if AI-driven efficiencies continue [1].

Leidos' recent financial results also support the upgrade. The company reported a revenue of $4.25 billion, surpassing the estimated $4.24 billion and marking a 3% organic growth year-over-year. Net income for the quarter was $393 million, translating to a diluted earnings per share (EPS) of $3.01, significantly higher than the estimated EPS of $2.51 [4]. The company's net income margin improved to 9.2% from 7.8% in the previous year, reflecting effective cost management and operational efficiency.

In conclusion, Leidos' upgrade by Jefferies reflects the company's strong position in the defense sector, driven by government initiatives and advancements in artificial intelligence. The company's robust financial performance and solid balance sheet further support the optimistic outlook.

References:
[1] https://www.ainvest.com/news/leidos-upgraded-buy-jefferies-defense-growth-earnings-upside-2508/
[2] https://za.investing.com/news/stock-market-news/jefferies-upgrades-leidos-to-buy-says-margin-risks-easing-3823136
[4] https://www.gurufocus.com/news/3034011/leidos-holdings-inc-ldos-q2-earnings-eps-of-301-beats-estimate-revenue-hits-425-billion