LDOS
T2Leidos Holdings, Inc.
OverviewLeidos provides technology and engineering services for national security, healthcare, and civil infrastructure. It operates through four segments: Intelligence
Leidos provides technology and engineering services for national security, healthcare, and civil infrastructure. It operates through four segments: Intelligence and Digital (33% of revenue), Health (27%), Defense (22%), and Homeland (18%). The company primarily serves the U.S. Department of Defense, intelligence agencies, and the Veterans Administration, delivering critical software, cybersecurity, and large-scale medical exam management.
- What They Do (Plain English & Analogies)
- Think of Leidos as the 'General Contractor' for the U.S. Government's most complex technology and engineering needs. If the Pentagon needs a fleet of autonomous ships, the VA needs to process millions of medical exams, or the FAA needs to modernize air traffic control software, Leidos is the firm that designs, builds, and manages the entire system. They bridge the gap between high-end Silicon Valley software and heavy-duty industrial hardware. Analogy: They are like an architect and lead engineer rolled into one, taking a government 'wish list' for a new defense or health system and turning it into a functioning, high-tech reality.
- Very Brief History
- Founded in 1969 as SAIC (Science Applications International Corporation), the company spent decades as a premier government research and engineering firm. In 2013, it split into two: the 'new' SAIC (focused on services) and Leidos (focused on technology and solutions). A massive 2016 merger with Lockheed Martin's IT business (IS&GS) doubled its size, and the 2020 acquisition of Dynetics pushed them deeper into high-end defense hardware like hypersonics and space systems. By 2026, they have fully transitioned into a 'Defense Tech' powerhouse under their 'North Star 2030' strategy.
- "Street Stereotype"
- Traditionally viewed as a 'low-margin body shop' (providing staff for government IT), the street now sees Leidos as a 'Defense Tech' leader that is successfully pivoting toward higher-margin proprietary products and specialized managed services. Investors view them as a reliable 'steady-eddie' with significant margin upside from their Health and Defense segments.
- Subsidiaries On Linked In*
- Dynetics, Kudu Dynamics, Gibbs & Cox, Entrust Solutions Group (pending), 1901 Group, QTC Management, and Leidos Biomedical Research.
- Customer Sectors & Example Clients
- Primary sectors include the U.S. Department of Defense (Army, Navy, Air Force), the Intelligence Community (NSA, CIA), Civil Agencies (FAA, NASA), and Health (Department of Veterans Affairs). Specific clients include the U.S. Air Force (Passive Radar/Cloud One), the Space Development Agency (SDA), the UK Ministry of Defence, and commercial utility companies like National Grid or Duke Energy (via their energy engineering arm).
- New Customers / Segments They'Re Targeting
- Leidos is aggressively targeting 'Rural and Behavioral Health' within the VA and Department of War, 'Commercial Energy Infrastructure' (via the $2.4B acquisition of Entrust), and 'Integrated Air Defense' (the 'Golden Dome' initiative) to protect the U.S. homeland from drone and missile threats. They are also expanding their 'Maritime Autonomy' footprint for the U.S. Navy and international allies like Australia.
- How Key Themes May Help/Hurt
- LDOS is a primary beneficiary of the 'Drones '25' theme through its IFPIC and passive radar systems (Alps/Marado) used for counter-UAS. Under 'AI '25', they are using an 'AI-first' approach to automate VA medical exams and internal coding, protecting margins against labor inflation. The 'EU Defense' theme supports their growing UK and Australian maritime and intelligence businesses as those nations ramp up strategic autonomy.
3 Main Long-Term Bull Details
- Margin Expansion: Shifting from labor-hour contracts to high-margin 'Managed Health' (25%+ margins) and proprietary defense products like hypersonics and autonomous vessels. 2) Backlog Momentum: A record $49B backlog and consistent 1.3x book-to-bill ratio provide multi-year revenue visibility. 3) National Security Alignment: Their portfolio is perfectly mapped to the current administration's focus on Homeland Defense, Space, and Cyber, which are historically resilient to budget cuts.
3 Main Long-Term Bear Details
- Recompete Risk: A significant portion of revenue comes from the VA Medical Exam contract (VBAMDE), which faces a major recompete in 2026 with a new fourth competitor entering the mix. 2) Budget Volatility: High exposure to U.S. government shutdowns and 'Continuing Resolutions' can delay contract awards and disrupt cash flow. 3) M&A Execution: The $2.4B acquisition of Entrust is a large bet on the commercial energy sector that must be integrated without distracting from core defense missions.
- Competitors And Differentiation
- Competitors include Booz Allen Hamilton (consulting-heavy), CACI (intel-heavy), SAIC (services-heavy), and the 'Big Primes' like Lockheed Martin or Northrop Grumman. Leidos differentiates by being 'platform agnostic'—they don't just sell one specific jet or tank; they provide the software, sensors, and AI that make *any* platform smarter. Their 'North Star' strategy emphasizes 'speed and scale,' combining commercial tech with military-grade security.
- Recent Performance & What The Market'S Focused On
- Leidos had an 'outstanding' 2025, beating guidance on earnings and cash flow despite a 6-week government shutdown. The market is currently focused on the 'North Star 2030' reorganization into five sectors, the tripling of CapEx to $350M to scale production for programs like IFPIC, and the upcoming 2026 recompete of high-margin Health contracts. Guidance for 2026 suggests revenue of $17.5B-$17.9B with margins stabilizing in the mid-13s.
- Brands And Revenue Segments
- Reporting segments as of 2026: 1) Intelligence and Digital ($5.7B revenue - Cyber/IT Modernization), 2) Health ($4.7B revenue - VA exams/Managed Health), 3) Homeland ($3.1B revenue - FAA/Energy/International), 4) Defense ($3.7B revenue - Hypersonics/Maritime/Space). Key brands include Dynetics (Defense Tech) and QTC (Health Services).
Bull / Bear DetailsAs of February 17, 2026, Leidos is successfully pivoting from a pure-play services firm to a high-margin 'National Security Company' by integrating hardware pro
Thesis
As of February 17, 2026, Leidos is successfully pivoting from a pure-play services firm to a high-margin 'National Security Company' by integrating hardware production with software expertise. Despite short-term headwinds from a government shutdown, record 1.3x bookings and a $49B backlog support a back-half weighted 2026 acceleration. The bullish case is compelling due to aggressive CapEx scaling in defense tech and strategic M&A in energy, offsetting risks from the VA health recompete.
Bull case
Leidos is tripling CapEx to $350M to scale production for high-priority programs like IFPIC, maritime autonomy, and hypersonics. This shift toward hardware-software integration allows for higher margin capture and 'franchise' program status. With a 15% increase in funded backlog and $7B in slipped awards expected to land in early 2026, the defense segment is poised for double-digit exit velocity by year-end.
The $2.4B acquisition of Entrust Solutions Group positions Leidos as a leader in U.S. power engineering, diversifying revenue into high-growth energy infrastructure. Combined with the successful integration of Kudu Dynamics for cyber capabilities, Leidos is effectively realigning its portfolio toward high-value 'North Star' growth pillars, which management expects to drive sustainable margin expansion and competitive differentiation through 2027.
Despite the entry of a fourth vendor in the VA medical exam (VBAMDE) market, Leidos maintains a dominant track record, having reduced backlogs by 60%. The company is pivoting toward rural and behavioral health transformation, targeting sustained margins above 20%. This segment remains a high-cash-flow engine, benefiting from technology-driven efficiencies and a strong 'takeaway' win rate in federal health.
Bear case
The upcoming Summer 2026 RFP for the VA medical disability exam (VBAMDE) contract introduces significant uncertainty. The addition of a fourth prime vendor and potential workshare reallocation could pressure revenue and margins in the Health segment, which has historically been a primary profitability driver. Any loss of prime status or significant volume reduction would materially impact the company's 2027 growth trajectory.
Tripling CapEx to $350M represents a significant shift in capital intensity and execution risk. Transitioning from a services-heavy model to large-scale hardware production (e.g., IFPIC, satellites) requires flawless supply chain management and facility scaling. Delays in production ramps or failure to secure anticipated 'Program of Record' funding from the Department of War could lead to stranded assets and margin compression.
Leidos remains highly sensitive to U.S. government fiscal cycles, as evidenced by the $7B in awards that slipped due to the recent shutdown. Ongoing pressure from the Department of Government Efficiency (DOGE) and potential shifts in administration priorities could delay task order awards under major IDIQs like SHIELD or FAA Cloud One, potentially hindering the projected 2026 back-half recovery.
Bull / Bear Case
- Bear Case
- The 2026 outlook presents several structural risks, primarily a projected contraction in Adjusted EBITDA margins to the 'mid-13s' from a 14.1% peak in 2025. The tripling of CapEx to $350 million significantly increases execution risk and pressures free cash flow at a time when the company is also increasing leverage for the $2.4 billion Entrust acquisition. Most critically, the Summer 2026 recompete for the VA Medical Disability Exam (VBAMDE) contract—Leidos' most profitable program—introduces significant uncertainty. The addition of a fourth prime vendor suggests a likely reallocation of workshare, which could severely dilute Health segment earnings in 2027. Additionally, the company remains vulnerable to political headwinds from the Department of Government Efficiency (DOGE) and potential budget delays, as evidenced by the $7 billion in awards that already slipped due to recent government instability.
- Bull Case
- Leidos is aggressively pivoting from a traditional services provider to a high-margin 'National Security Company' by integrating hardware production with software expertise. The decision to triple CapEx to $350 million is a strategic move to scale production for 'franchise' programs like IFPIC (base defense), maritime autonomy, and hypersonics, where the company acts as a lead systems integrator. This shift toward hardware-led solutions allows for higher margin capture and deeper customer stickiness. With a record 1.3x book-to-bill ratio in FY2025 and $7 billion in 'slipped' awards expected to land in early 2026, the company is poised for a significant growth inflection, targeting double-digit exit velocity by year-end. Furthermore, the $2.4 billion Entrust acquisition diversifies revenue into high-growth energy infrastructure, while the Health segment continues to deliver industry-leading 20%+ margins through AI-driven efficiencies.
- More Compelling & Why
- Bear. While the long-term pivot to defense tech is promising, the 2026 guidance reflects a 'transition year' characterized by margin compression and a declining FCF yield (dropping toward ~5.5% due to the CapEx ramp). The strongest argument for the bear case is the binary risk of the Summer 2026 VA recompete; with a fourth vendor entering the fray, workshare loss is a high probability in Leidos' highest-margin segment. The current valuation does not sufficiently discount the risk of a margin 'reset' in Health. My view would flip to Bull if the company captures the $7B in slipped awards in Q1 and secures a favorable workshare agreement in the VA RFP.
Key Factors
| Key Factor | Why It Matters | What To Watch | What It Signals | Where/How To Track | Free Alt Data | Paid Alt Data |
|---|---|---|---|---|---|---|
| H2 2026 Revenue and Margin Acceleration | Management has guided for Q2 to be the low point with significant acceleration in Q3 and Q4. Meeting this guidance is crucial for validating the company's full-year outlook and demonstrating execution of its NorthStar 2030 strategy. | Q2 2026 revenue and adjusted EBITDA margin performance, and subsequent Q3 2026 guidance. Analysts expect diluted EPS of $2.91 for Q2 2026. | Bullish: Q2 revenue and adjusted EBITDA margin meet or exceed expectations (e.g., Q2 EPS >$2.91), with strong Q3 guidance indicating the anticipated acceleration. Bearish: Q2 revenue or adjusted EBITDA margin fall below expectations, or Q3 guidance is weaker than anticipated, suggesting delays in the H2 recovery. | Company earnings calls and press releases (Q2 2026 earnings call on August 4, 2026). | N/A | AlphaSense/Tegus: Sentiment analysis of earnings call transcripts for 'H2 acceleration' or 'Q2 low point' mentions. |
| AI-Driven Solutions & Cyber Pipeline Expansion | Leidos views AI as an accelerant, and successful deployment of AI tools (e.g., Skywire, My Service Treatment Record) and expansion of the cyber pipeline (now $24B) will demonstrate the monetization of proprietary data and drive growth in high-value segments, aligning with the 'AI '25: Data Owners' theme. | Progress on the My Service Treatment Record pilot program, further deployment of Skywire across business units, new contract wins within the $24 billion cyber pipeline, and updates on AI partnerships (e.g., with The Modern Data Company and DHL). | Bullish: Successful pilot completion for My Service Treatment Record and expansion to full deployment. Announcement of significant new cyber awards leveraging AI (e.g., >$100M). Positive updates on Skywire's impact on efficiency and new AI partnerships leading to contract wins. Bearish: Delays or setbacks in AI pilot programs. Lack of new, large cyber contract wins. | Company press releases, earnings calls (Q2 2026 earnings call on August 4, 2026), investor presentations. | Google Trends: Search volume for 'Leidos AI,' 'Skywire Leidos,' 'My Service Treatment Record.' USASpending.gov: Government contract awards for Leidos in cyber and health IT. | Thinknum: AI-related job postings at Leidos. YipitData: Enterprise AI adoption metrics (if specific to Leidos products). |
| Entrust Solutions Group Integration & $10B Order Pipeline Conversion | Successful integration and conversion of the expanded $10 billion pipeline will validate the strategic acquisition, drive revenue growth, and demonstrate synergy benefits, directly impacting Leidos' energy resilience growth pillar. | New contract awards in energy infrastructure from the $10 billion refreshed order pipeline. Any further updates on integration progress and synergy realization. | Bullish: Announcement of significant new contract wins (e.g., >$500M) from the $10B pipeline. Continued positive commentary on integration and synergy realization in Q2 earnings. Bearish: Lack of significant new awards from the $10B pipeline or reports of integration challenges. | Company earnings calls and press releases (Q2 2026 earnings call on August 4, 2026), investor presentations. | Industry news on energy infrastructure projects, government energy initiatives (e.g., Department of Energy announcements). | Thinknum: Job postings for Entrust-related roles (integration progress). YipitData: Commercial energy sector project awards. |
| Defense Tech Accelerated Procurement Agreements & Production Ramps (e.g., AGM-190A, MUSVs, ALPS) | Securing accelerated procurement agreements and successfully ramping production for key defense products will drive high-margin revenue growth and solidify Leidos' position as a 'National Security Company.' | Announcements of new framework agreements, serial production milestones (e.g., specific unit numbers for AGM-190A, MUSVs), and new contract awards within the $8 billion next 12-month pipeline for Defense Tech. Recent awards like the $64.8M Naval Sea Systems Command contract and $89.6M NASA contract demonstrate ongoing activity. | Bullish: Announcement of new framework agreements or accelerated procurement contracts. Confirmation of production runs of 'thousands' of AGM-190A missiles this decade. Successful operational deployment of MUSVs beyond Seahawk. Significant new awards (e.g., >$100M) for Defense Tech. Bearish: Delays in securing new agreements or production ramp-ups. Lack of significant new awards from the $8B pipeline. | Company press releases, SEC filings, Department of War (DoD) announcements, NASA contract announcements, industry conferences. | USASpending.gov: Government contract awards for Leidos in Defense (e.g., tracking awards like the $64.8M Naval Sea Systems Command contract and $89.6M NASA contract). Defense News/Breaking Defense: Industry reports on defense procurement. | Thinknum: Engineering/production job postings for Defense Tech programs. GovWin IQ: Government contract award data. |
| VA Medical Disability Exam (VBAMDE) Recompete & Industry Day Outcomes | The upcoming RFP (Summer 2026) and the outcome of the recent industry day (May 2026) will provide crucial insights into the future structure and workshare of the Veterans Benefits Exam contract, a significant profitability driver for the Health segment. | Release of the Request for Proposal (RFP) for the VBAMDE contract in Summer 2026. Any public statements or updates from Leidos regarding the outcome of the May 2026 industry day and its implications for workshare and contract terms. | Bullish: Retention of primary workshare and contract terms that support sustained margins above 20%. Positive commentary on Leidos' competitive positioning post-industry day. Bearish: Significant reduction in Leidos' workshare or contract terms that pressure margins. | Company earnings calls (Q2 2026 earnings call on August 4, 2026), VA procurement websites (e.g., SAM.gov), industry analyst reports. | VA.gov: Official announcements or solicitations related to veteran benefits exams. | AlphaSense/Tegus: Keyword searches in competitor transcripts for VA contract commentary. |
Key Reported Metrics, Reratings Triggers & ResultsMargin expansion reflects operating leverage and favorable mix as Leidos scales production for priority programs; a key indicator of profitability trajectory am
| Key reported metrics | Rerating thresholds | ||||
|---|---|---|---|---|---|
| Metric | Last period | Why it matters | What's needed for rerating | Rerating context | Earnings date |
| Adjusted EBITDA Margin | +1.60% | Margin expansion reflects operating leverage and favorable mix as Leidos scales production for priority programs; a key indicator of profitability trajectory amid capex ramp and portfolio shifts. | Leidos Holdings, Inc. (LDOS) needs to report an Adjusted EBITDA margin of at least 13.5% for Q2 2026. This would exceed the cautious management outlook that Q2 will be the 'low point' for margins in 2026 and provide confidence in achieving or exceeding the full-year 2026 guidance of 'mid-thirteens' Adjusted EBITDA margin. | An Adjusted EBITDA margin of 13.5% or higher would signal effective management of strategic investments and portfolio shifts, validating the 'high-margin National Security Company' thesis. This would alleviate investor concerns about near-term margin pressure, support a more favorable valuation, and reinforce confidence in the projected back-half 2026 acceleration. | |
| Funded Backlog YoY Growth | +15% | Backlog growth signals revenue visibility and pipeline strength, supporting confidence in 2026 revenue trajectory and deployment of growth initiatives. | |||
| Total Revenue | -3.6% | Q4 and full-year revenue performance shape near-term top-line expectations; the next quarter will hinge on how revenue trends recover from the Q4 softness and the guidance for 2026 implying improved growth dynamics in the back half. | Total Revenue growth of at least 4% year-over-year in Q2 2026, demonstrating resilience despite being a 'low point' quarter, coupled with a reaffirmation of the high end of the full-year 2026 revenue guidance ($18.4 billion) and strong indications of accelerating organic growth towards double-digit year-over-year growth by year-end. | Hitting this threshold would validate Leidos's 'National Security Company' pivot and its ability to execute on strategic investments and acquisitions. It would signal that the anticipated back-half weighted acceleration is materializing, strengthening the long thesis by demonstrating sustainable top-line growth and improved competitive positioning, which is crucial for a positive rerating. | |
Key QuestionsCan Leidos successfully capture the $7 billion in 'slipped' contract awards in the first half of 2026 to validate its back-half weighted growth guidance and mai
Can Leidos successfully capture the $7 billion in 'slipped' contract awards in the first half of 2026 to validate its back-half weighted growth guidance and maintain its 1.3x book-to-bill momentum?
- Question 2
Will the tripling of CapEx to $350 million to scale production for high-priority programs like IFPIC and maritime autonomy successfully transition the company toward a higher-margin hardware-led model without diluting near-term EBITDA margins?
- Question 3
To what extent will the entry of a fourth vendor and the upcoming Summer 2026 recompete for the VA Medical Disability Exam (VBAMDE) contract pressure Leidos' workshare and its ability to sustain 20%+ margins in the Health segment?
Earnings Transcript Summary
· 2025Q4 Earnings Call
| 3 Things Management Is Most Focused On | Call Takeaway & Tone | Prior Quarter'S Y/Y Growth By Segment | 3 Things Analysts Most Pressed On (And Mgmt Responses) | Revenue Segments |
|---|---|---|---|---|
| 1. North Star 2030 Strategy Execution: Realigning the organization into five sectors and four reporting segments to better serve growth pillars like Cyber, Energy, and Space. 2. Scaling Production Capacity: Tripling CapEx to $350M to expand facilities for high-priority programs including IFPIC, Maritime Autonomy, and Hypersonics. 3. Strategic M&A and Portfolio Shaping: Integrating Kudu Dynamics for cyber capabilities and the pending $2.4B acquisition of Entrust Solutions Group to lead in U.S. power engineering. | The takeaway is that Leidos is successfully transitioning from a pure services provider to a technology-led 'National Security Company' with significant hardware production upside. Despite Q4 revenue being masked by a government shutdown, record bookings (1.3x book-to-bill) and a $49B backlog suggest strong demand. The tone was highly confident and aggressive regarding internal investment for a 2027 breakout. | Based on Q3 FY2025 results: Total Revenue: +7.0%; National Security and Digital: +8.2%; Health and Civil: +5.1%; Commercial and International: +6.4%; Defense Systems: +11.3%. (Note: Q4 growth decelerated primarily due to the 6-week government shutdown and the lack of an extra work week compared to the prior year). | 1. CapEx Ramp and Co-investment: Analysts questioned the tripling of CapEx; Management explained it is necessary to meet Department of War demand for production scaling and co-development of 'franchise' programs. 2. 2026 Growth Cadence: Analysts noted the slow start to 2026; Management responded that $7B in awards slipped from Q4 to Q1 due to the shutdown, creating a back-half weighted growth profile approaching double digits by year-end. 3. Health Segment Recompete (VA MDE): Analysts asked about the upcoming medical exam bid; Management emphasized their 60% backlog reduction track record and focus on rural/behavioral health to maintain >20% margins despite a new fourth vendor. | Total Revenue: -3.6% (Normalized for extra week and government shutdown: ~+4%); National Security and Digital: Strong underlying growth (unspecified percentage); Health and Civil: Down slightly for the quarter; Commercial and International: Growth (accounting for extra week); Defense Systems: Sustained robust growth driven by production phase on key programs. |
Transcript Tidbits
| About Expanding Eligible Market | About Competition | About The Broader Industry | Where Things Are Headed | Updates On Theme | Broader Themes Emerging | Bullish-Leaning Quotes (Short) | Bearish-Leaning Quotes (Short) | Hiring |
|---|---|---|---|---|---|---|---|---|
| Leidos is expanding its market through the Entrust acquisition, which has already produced new opportunities like an energy generation plant RFP and detailed design for Canada's largest battery electrical storage facility, targeting a refreshed order pipeline of $10 billion, representing 230% growth. The joint venture with Analogic for the SES business aims to create a focused American leader in the critical global market of Homeland Defense. The Kudu acquisition has accelerated the use of AI technology for cyber mission software and operations, increasing the total cyber pipeline to $24 billion, a 21% increase since the acquisition. A multiyear $100 million venture stage investment in a marquee PE firm provides early access to high-growth disruptors in AI, advanced cyber, and autonomy. In Health, the Military OneSource award and My Service Treatment Record pilot program are expanding strategic entry points into the broader disability examinations mission and embedding Leidos into the mission's digital DNA. Managed health is identified as a growth pillar, with a focus on behavioral health and rural health. The Defense Tech portfolio has secured over $9 billion in awards in the last 15 months and anticipates another $8 billion in its next 12-month pipeline. The company is also pursuing accelerated procurement agreements, such as framework agreements, to field advanced products and capabilities in Defense. | Leidos' Air Shield high-power microwave counter UAS technology consistently outperforms all competitors in range and lethality. The company believes it can serve more veterans, faster, and cheaper than its competitors in the Veterans Benefits exam business. The Seahawk MUSV is noted as the U.S. Navy's first and only medium unmanned surface vehicle to reach operational deployment and customer confidence. While acknowledging the provisioning for the effects of a fourth vendor in the Veterans Benefits exam market, Leidos noted that its volumes are remaining high and robust. | The market is experiencing changing dynamics, requiring rapid adaptation and deployment of learnings to customers. There is a clear area of focus by the Department of War on Munitions. The U.S. Navy is adopting a marketplace acquisition approach for MUSVs and mission payloads. Demand for energy infrastructure services is expanding daily. AI is compressing the bottom of the solution value chain, making routine development, basic analytics, and data integration easier. As AI increases the clock speed of mission execution, risk grows, strengthening Leidos' position as trusted mission AI experts. Intelligence Community (IC) budgets in America have grown 4% to 5% annually since 2022 and are expected to continue this trend, with significant investment in digital infrastructure. Procurement is still recovering from a protracted government shutdown. The market is perceived to be taking a more skeptical view of growth potential in services compared to products. | The NorthStar 2030 growth strategy is in full swing, setting the stage for a multiyear growth trajectory. Leidos plans to increase investments in its five growth pillars: Defense Tech, managed health, digital infrastructure and cyber, energy resilience, and mission software. The company aims to become faster, leaner, and more focused, emphasizing speed. It will leverage its scale through technology insertion and learning across the entire business. A clear path to production runs of thousands of small cruise missiles (AGM-190A) is anticipated within this decade. Awards are expected to pick up significantly over the course of the year. Q2 is projected as the likely low point for revenue growth and margin, with growth building in Q3 and Q4 and carrying momentum into 2027. The long-term outlook for the Health business is bullish, with expectations of maintaining its leading role in serving veterans and expanding into digital ecosystems, behavioral health, and rural health. The elevated CapEx is a fixed, finite period of investment, not anticipated to continue perpetually. | Data | The concept of 'co-investment framework agreements' is emerging, where industry and the Department of War share R&D costs for franchise programs, as implied by Leidos' pursuit of accelerated procurement agreements. | Today, I am pleased to report a very strong start for Leidos in 2026. Leidos is built to thrive. Execution of our NorthStar 2030 growth strategy is now in full swing. We are raising our 2026 guidance for revenue by $500 million. All in all, we can clearly see a path to production runs of thousands of these products in this decade alone. In total, we've earned over $9 billion of awards for our Defense Tech business in the last 15 months alone. Leidos' full-spectrum cyber capacity is delivering against surging demand. Integration is ahead of schedule, the cultural alignment is seamless, and the financial upside is already surfacing. Leidos is out of the blocks in 2026 playing offense. Leidos is a cash machine. We remain extremely bullish on the long-term outlook for the business. | Changes in estimates at completion were a modest headwind in the quarter. Q2 as the likely low point this year in revenue growth and margin. Procurement is still recovering from the protracted government shutdown. Defense non-GAAP operating margin was 8.3% compared to 9.8% in the prior year quarter. While it's a little lumpy this year, it's not dimming our outlook on the year as a whole. | AI is compressing the bottom of the solution value chain, which frees up highly specialized talent to focus on higher-value activities. |
| About Expanding Eligible Market | About Competition | About The Broader Industry | Where Things Are Headed | Updates On Theme | Broader Themes Emerging | Bullish-Leaning Quotes (Short) | Bearish-Leaning Quotes (Short) | Hiring |
|---|---|---|---|---|---|---|---|---|
| Leidos is significantly expanding its footprint in the energy sector through the $2.4 billion acquisition of Entrust Solutions Group, aiming to become a 'power engineering and design leader in the U.S.' The company is also targeting new growth in 'rural care' and 'behavioral and integrated health' within its Health segment. Strategic entry into exquisite cyber markets was noted via the Kudu Dynamics acquisition, which is providing 'entry into new markets.' Additionally, the company is tripling its CapEx to $350 million to expand production capacity for high-priority national security programs like IFPIC and maritime autonomy. | Management expressed a strong intent to 'further separate from the pack in 2027' and 'accelerate away from the pack' in the Health business. While acknowledging the 'entry of the fourth vendor' on the VA medical exam (VBAMDE) work, Leidos remains confident in its 'takeaway win rate' and its ability to 'sharpen the pencil' to maintain profitability. The acquisition of Entrust is specifically designed to 'increase our competitiveness' in the high-growth energy engineering market. | The industry faced significant headwinds from the 'longest U.S. government shutdown' and the complexities of 'Doge' (Department of Government Efficiency) early in the year. There is a structural shift toward a 'new kind of national security company' that integrates cutting-edge hardware and software. The administration is increasingly looking for partners willing to 'co-invest' and put 'money behind their technical prowess,' moving away from traditional maintenance toward 'high value mission outcomes.' | Leidos is in 'strategy execution mode' for its North Star 2030 plan, with a 'strong bias for velocity.' Revenue growth is expected to build throughout 2026, ending with 'sustained momentum approaching double digits' by year-end. The company is realigning into five sectors (Defense, Homeland, Intelligence, Digital Modernization, Health) to better match administration priorities. Future capital deployment will prioritize 'inorganic and organic investments' over share repurchases in the near term to fuel growth pillars. | EU | Emergence of 'co-investment framework agreements' where industry and the Department of War share R&D costs for franchise programs; 'Rural Health Transformation' as a national priority; 'Energy Infrastructure Resilience' as a key component of homeland security. | 2026 will be the year that traction from our strategic action becomes even more evident.; Our year-over-year funded backlog is up 15%.; We are redefining what it means to be a national security company.; We will triple our capital expenditure investments this year to $350,000,000. | Six-week government shutdown in 2025.; Modestly lower revenue and margin from the additional vendor on the VBAMDE work.; Extra work week is about twice as impactful as the shutdown.; Some high-margin airborne programs ebb. |
Notes
| Date | Comment | Comment Type | Comment Sentiment | Link | Price Reaction |
|---|---|---|---|---|---|
| 2026-02-17 | Leidos reported a strong FY2025 finish, exceeding guidance with a 1.3x book-to-bill ratio. However, the market reacted with caution to conservative FY2026 guidance, which anticipates margin normalization and a tripling of CapEx to $350M for strategic investments. While the $2.4B Entrust acquisition and 'Golden Dome' prospects offer long-term upside, the near-term focus remains on execution during organizational realignment and increased spending. | Earnings Transcript | Neutral | https://investors.leidos.com/investor-relations | N/A |