LDOS

Leidos Holdings, Inc.

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Overview

Leidos 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 Details

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 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 Factors5 rows

Key Factor	Why It Matters	What To Watch	What It Signals	Where/How To Track	Free Alt Data	Paid Alt Data
Recovery of $7 Billion in 'Slipped' Contract Awards	Management noted that $7 billion in expected awards slipped from Q4 FY2025 to Q1 FY2026 due to the government shutdown. Realizing these bookings is essential to validate the 'back-half weighted' growth story and the target of double-digit exit velocity.	Q1 FY2026 net bookings and book-to-bill ratio. Management needs to see a significant portion of that $7B captured to maintain the 1.3x momentum.	Q1 Book-to-bill ratio >1.2x = Bullish; Q1 Book-to-bill ratio <1.0x = Bearish (suggesting the 'slipped' awards were lost or further delayed).	Q1 FY2026 Earnings Release (expected May 2026).	USASpending.gov: Monitor new obligations for Leidos (UEI: MN99Y7HN8357) specifically in the Defense and Intelligence sectors during Feb-April 2026.	Bloomberg Government: Real-time tracking of federal contract award announcements and protests.
Closing and Integration of Entrust Solutions Group	The $2.4 billion acquisition is Leidos' largest recent move to dominate the U.S. power engineering market. It is expected to be margin-accretive and shift the business mix toward high-growth commercial energy infrastructure, diversifying away from pure government cycles.	Official deal closure in Q2 2026 and the subsequent update to FY2026 financial guidance, specifically looking for revenue and EBITDA margin raises.	Closing by June 30, 2026, with a guidance raise = Bullish; Delays in regulatory approval or integration cost overruns = Bearish.	SEC Form 8-K filings and company press releases; Q1 FY2026 earnings call (scheduled for late April/early May 2026).	LinkedIn: Monitor headcount growth and key leadership retention at Entrust Solutions Group post-acquisition.	Thinknum: Tracking job postings at Entrust Solutions Group to gauge post-merger integration and expansion velocity.
Task Order Wins under SHIELD and FAA Cloud One Next	Leidos secured spots on massive IDIQs ($151B SHIELD and $455M Cloud One). However, these do not count toward backlog until task orders are awarded. These orders are the primary engine for the Intelligence and Digital segment's growth.	Announcement of specific task orders under the Missile Defense Agency's SHIELD program. Watch for task order values exceeding $100M.	Cumulative task order awards >$500M in first half of 2026 = Bullish; Lack of task order activity on these vehicles = Bearish.	Defense.gov Contract Awards (daily 5 PM ET releases) and Leidos Investor Relations press releases.	USASpending.gov: Filter by 'Funding Agency: Missile Defense Agency' and 'Recipient: Leidos' to find task-level obligations.	GovWin (Deltek): Task order tracking and spending analysis for specific IDIQ vehicles.
VA Medical Disability Exam (VBAMDE) Recompete RFP	The Health segment is Leidos' most profitable (25.5% margin). With a fourth vendor entering the space and a recompete expected in Summer 2026, retaining prime status and workshare is critical to maintaining the segment's >20% margin floor and long-term growth.	Release of the Request for Proposal (RFP) in Summer 2026 and subsequent bid submission. Watch for terms regarding workshare reallocation among the now four prime vendors.	Retention of primary workshare and contract win = Bullish; Significant reduction in workshare or loss of prime status = Bearish.	SAM.gov (Contract Opportunities) and VA.gov newsroom; Q2 and Q3 FY2026 earnings calls.	USASpending.gov: Track historical task order obligations for 'Medical Disability Examinations' under the Veterans Benefits Administration.	GovWin (Deltek): Tracking of the VBAMDE recompete lifecycle and competitor bidding intelligence.
IFPIC Increment 2 Production Ramp and CapEx Execution	Leidos is tripling its CapEx to $350 million to transition from a services-heavy model to a hardware/tech producer. IFPIC (Indirect Fire Protection Capability) is a flagship program with a target of 317 systems by 2030.	Progress on the $350M CapEx spend rate and specific milestones for IFPIC Increment 2 production facility expansion. Watch for Army 'Program of Record' funding updates.	Successful facility expansion and production of first 50+ units in 2026 = Bullish; Delays in production scaling or CapEx underspend = Bearish.	Quarterly 10-Q filings (Capital Expenditures section) and Department of Defense (DoD) contract award announcements.	Google Earth/Satellite Imagery: Monitor construction/expansion at Leidos' primary manufacturing and classified facilities.	Industrial Info Resources: Tracking of specific industrial project spending and facility upgrades in the defense sector.

Key Reported Metrics3 rows

Metric	Why It Matters	Last Period
Total Revenue	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.	-3.6%
Funded Backlog YoY Growth	Backlog growth signals revenue visibility and pipeline strength, supporting confidence in 2026 revenue trajectory and deployment of growth initiatives.	+15%
Adjusted EBITDA Margin	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.	+1.60%

Key Questions

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 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 SummaryTable

2026-02-17 · 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 TidbitsTable

2026-02-17

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.

NotesTable

Date	Comment	Comment Type	Comment Sentiment	Link	IS CHANGE	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	False	N/A