Leidos Holdings Inc (LDOS, Financial) has recently witnessed a daily gain of 1.79% and a 3-month gain of 6.08%. With an Earnings Per Share (EPS) of 5.12, the question arises whether the stock is modestly undervalued. This article aims to provide a comprehensive valuation analysis of Leidos Holdings Inc. Keep reading to understand the intrinsic value of this stock.
Company Introduction
Leidos Holdings Inc is a technology, engineering, and science company that offers services and solutions in the defense, intelligence, civil, and health markets, both domestically and internationally. Its customers include the U.S. Department of Defense ("DoD"), the U.S. Intelligence Community, the U.S. Department of Homeland Security ("DHS"), the Federal Aviation Administration ("FAA"), the Department of Veterans Affairs ("VA"), and numerous other U.S. civilian, state, and local government agencies. The company operates in three reportable segments; Defense Solutions, Civil, and Health. Defense Solutions, the key revenue generator, provides leading-edge and technologically advanced services, solutions, and products to a broad customer base.
Understanding the GF Value
The GF Value is a unique measure that represents the current intrinsic value of a stock. It is calculated based on three factors: historical multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
The stock of Leidos Holdings Inc (LDOS, Financial) is estimated to be modestly undervalued according to GuruFocus' valuation method. The current share price of $93.81 is lower than the fair value of $113.29 as estimated by the GF Value. This suggests that the long-term return of Leidos Holdings stock is likely to be higher than its business growth.
Financial Strength
Before investing in a company, it is crucial to check its financial strength. Investing in companies with poor financial strength carries a higher risk of permanent loss. The financial strength of Leidos Holdings, as indicated by its cash-to-debt ratio of 0.06, is fair. This ratio is worse than 94.63% of 2721 companies in the Software industry.
Profitability and Growth
Investing in profitable companies is less risky, especially those with consistent profitability over the long term. Leidos Holdings has been profitable 9 out of the past 10 years. With an operating margin of 7.88%, which ranks better than 64.37% of 2756 companies in the Software industry, the overall profitability of Leidos Holdings is strong.
However, the growth of Leidos Holdings is not as impressive. The 3-year average annual revenue growth of Leidos Holdings is 10.9%, which ranks better than 56.95% of 2397 companies in the Software industry. But the 3-year average EBITDA growth rate is 6.1%, which ranks worse than 56.14% of 1988 companies in the Software industry.
ROIC vs WACC
Comparing the return on invested capital and the weighted cost of capital offers another perspective on a company's profitability. For the past 12 months, Leidos Holdings's return on invested capital is 8.68, and its cost of capital is 7.53, indicating a favorable balance.
Conclusion
In conclusion, the stock of Leidos Holdings (LDOS, Financial) is estimated to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 56.14% of 1988 companies in the Software industry. To learn more about Leidos Holdings stock, you can check out its 30-Year Financials here.
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