Leidos Holdings Inc (LDOS, Financial) recently experienced a 5.43% gain, with an Earnings Per Share (EPS) of 4.86. But is this stock modestly undervalued, as suggested by the GF Value? This article aims to answer that question, offering an in-depth analysis of Leidos Holdings' valuation. Let's delve into the financials of this intriguing company.
Introduction to Leidos Holdings Inc (LDOS, Financial)
Leidos Holdings Inc is a prominent player in the technology, engineering, and science sectors. The company offers services and solutions in defense, intelligence, civil, and health markets both domestically and internationally. Its customer base includes the U.S. Department of Defense, the U.S. Intelligence Community, the Department of Veterans Affairs, and many other U.S. civilian, state, and local government agencies. Leidos Holdings operates in three reportable segments: Defense Solutions, Civil, and Health, with Defense Solutions being the key revenue generator.
Despite a current stock price of $98.61, the GF Value indicates a fair value of $114.72. This discrepancy suggests that Leidos Holdings (LDOS, Financial) might be modestly undervalued. The income breakdown of Leidos Holdings provides additional insight:
Understanding the GF Value
The GF Value is a proprietary measure that estimates a stock's intrinsic value. It's calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line represents the fair trading value of the stock. If the stock price is significantly above the GF Value Line, it's likely overvalued, and its future return may be poor. Conversely, if it's below the GF Value Line, its future return might be higher.
According to the GF Value, Leidos Holdings (LDOS, Financial) appears to be modestly undervalued. With a market cap of $13.5 billion, the stock seems poised for higher long-term returns than its business growth. The GF Value chart provides a visual representation of this valuation:
Financial Strength Analysis
Investing in companies with poor financial strength can result in a high risk of permanent capital loss. It's crucial to review a company's financial strength, including its cash-to-debt ratio and interest coverage, before purchasing shares. Leidos Holdings' cash-to-debt ratio of 0.07 ranks it lower than 94.41% of companies in the Software industry, indicating poor financial strength.
Here's a look at Leidos Holdings' debt and cash over the past years:
Profitability and Growth Assessment
Consistent profitability over the long term reduces investment risk. Higher profit margins often indicate a better investment compared to companies with lower profit margins. Leidos Holdings has been profitable for nine out of the past 10 years, boasting an operating margin of 7.64%, which ranks better than 65.38% of companies in the Software industry. This strong profitability is complemented by an average annual revenue growth of 10.9%, though the 3-year average EBITDA growth of 6.1% ranks lower than 56.28% of companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. Over the past 12 months, Leidos Holdings' ROIC was 8.33, exceeding its WACC of 6.79, indicating value creation for shareholders. The historical ROIC vs WACC comparison provides further insights:
Conclusion
In conclusion, Leidos Holdings (LDOS, Financial) appears to be modestly undervalued. The company exhibits fair financial strength and strong profitability, although its growth ranks lower than 56.28% of companies in the Software industry. For more information about Leidos Holdings stock, check out its 30-Year Financials here.
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