Leidos Holdings Inc.’s LDOS shares have risen an impressive 4.5% over the past year, outperforming the Zacks Aerospace-Defense industry and the broader Zacks Aerospace sector. While the industry declined 5.8%, the sector recorded a gain of 1.9% in the said time frame.

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Other industry players, such as RTX Corp. RTX, Lockheed Martin Corp. LMT and Northrop Grumman Corp. NOC, also performed impressively, with their shares rising 39.5%, 5.9% and 3.1%, respectively, over the past year.

With Leidos Holdings riding high, individuals may rush to add the stock to their portfolio. However, before making any hasty decision, it would be prudent to take a look at the reasons behind the gain, the stock’s growth prospects as well as risks (if any) to investing in the same. This will help investors make a more insightful decision.

What Led to LDOS Stock’s Rally?

As a company offering diverse products, from aerospace and defense products to health information management services and cyber security technologies, Leidos enjoys a solid inflow of contracts for its varied products. These contracts lead to a solid backlog count, which bolsters this defense contractor’s future revenue generation prospects. 

This, in turn, must have boosted investors' confidence in this stock’s profitability and was reflected in the form of the share price rise as mentioned above. Notably, LDOS ended the fourth quarter of 2024 with a backlog of $43.55 billion, reflecting an improvement over the prior quarter level of $40.56 billion.  

The company’s sturdy financial health might have also compelled investors to stay invested in this stock. Leidos Holdings’ cash and cash equivalents totaled $0.94 billion at the end of the fourth quarter of 2024, while its current debt totaled $0.62 billion. By doing a comparative analysis of these figures, we may safely conclude that the company holds a strong solvency position, at least in the near term. Moreover, its current ratio of 1.21 as of Jan. 3, 2025, being more than one, indicates that the company boasts sufficient capital to pay off its short-term debt obligations. 

What Lies Ahead for Leidos?

The global defense industry is set for strong growth as escalating geopolitical tensions drive increased military spending. Depleted weapon stockpiles have prompted both developed and developing nations to boost defense budgets, fueling demand for advanced technologies. The sector is also witnessing increasing adoption of AI and data analytics to improve battlespace awareness and operational efficiency. These innovations are reshaping modern defense strategies, ensuring military forces remain prepared for evolving threats.

Amid this expansion, S&P 500 defense stocks such as Leidos Holdings, known for its expertise in airborne operations, intelligence, surveillance and reconnaissance, stand to benefit. With a focus on cutting-edge solutions, Leidos is thus well-positioned for sustained long-term growth in a rapidly evolving landscape.

The Zacks Consensus Estimate for LDOS’ long-term (three-to-five-year) earnings growth is pegged at 7.4%.

A sneak peek at its near-term earnings and sales estimates mirrors a similar picture.

LDOS’ Upbeat Estimates

The Zacks Consensus Estimate for 2025 and 2026 sales suggests an improvement of 2.6% and 3.6%, respectively, year over year. A similar improvement is suggested by the annual estimates for earnings as well. 

The Zacks Consensus Estimate for 2025 and 2026 earnings per share has moved north 1.9% and 4.6%, respectively, over the past 60 days. The upward revision in earnings estimates indicates analysts’ increasing confidence in the stock’s earnings growth capabilities.

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Image Source: Zacks Investment Research

Risks to Consider Before Choosing LDOS Stock

Despite strong growth prospects, the defense industry faces challenges that investors should consider before investing in Leidos Holdings. A key concern is the ongoing supply-chain shortage, which continues to disrupt the sector. 

In particular, the scarcity of critical materials like semiconductors and rare earth elements—essential for defense technologies—has intensified due to global dependence on a few nations, notably China and Russia. The pandemic exacerbated these issues, causing severe supply-chain imbalances, and while its immediate effects have largely subsided, broader supply disruptions persist. Given the strategic importance of these materials, supply constraints are unlikely to be resolved soon. 

As a result, defense contractors like LDOS may continue to face production bottlenecks and cost pressure in the near term. 

LDOS Stock Trading at a Discount

In terms of valuation, LDOS’ forward 12-month price-to-earnings (P/E) is 12.53X, a discount to its industry’s average of 22.14X. This suggests that investors will be paying a lower price than the company's expected earnings growth compared to that of its industry.

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What Should an Investor Do?

To conclude, investors interested in LDOS may add this stock to their portfolio, considering its discounted valuation, long-term growth prospects, solid performance of its shares at the bourses over the past year as well as upward revision in its earnings estimates. 

LDOS currently has a VGM Score of A, which is also a favorable indicator of strong performance. The company’s Zacks Rank #2 (Buy) further supports our thesis. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.  
 

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Lockheed Martin Corporation (LMT) : Free Stock Analysis Report

Northrop Grumman Corporation (NOC) : Free Stock Analysis Report

Leidos Holdings, Inc. (LDOS) : Free Stock Analysis Report

RTX Corporation (RTX) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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