Leidos Holdings, Inc.
Analysis
Leidos is becoming a defense-products company — munitions, drone boats, space sensors — while its reliable veterans health-exam business shrinks. Guidance has been raised twice this year, but the payoff depends on factories delivering before the health hole widens. How much of Leidos' defense product backlog becomes revenue in the next year?
- Defense has swung from prototypes into factory production.
Defense booked more than twice the revenue it billed in Q2 FY2026, and now calls its containerized munitions framework a production program, not a test. Profit increasingly comes from shipping hardware at scale, not billing hours.
- The veterans health-exam business is shrinking.
Health revenue fell from $1.19 billion to $1.09 billion after a fourth vendor took share and the VA suspended incentive payments that padded margins. Management calls that level the new baseline — the profit anchor is now a hole to fill. What margin can Leidos hold if the VA exam contract is repriced?
- Leidos is paying for the pivot with borrowed money.
Buybacks have given way to buying businesses — Kudu, then Entrust — and net debt climbed from $3.5 billion at the end of 2025 to about $5.9 billion. The new growth has to cover the interest on that before it earns shareholders anything. How much of Leidos' cash flow goes to interest payments after the Entrust debt?
- Defense hardware production ordersThe bull case is that years of company-funded research have turned into defense hardware programs that customers are now ordering in quantity rather than studying.
- Energy engineering acquisitionBuying an energy engineering firm adds scale in grid design, a market where utilities spend heavily and where the company already sells design software.
- Cash generation and capital returnsStrong cash conversion pays for added production capacity and still leaves room for acquisitions, dividends and share repurchases without straining the balance sheet.
- Veterans exam contract under pressureThe bear case is that the veterans exam franchise, the company's most profitable business, is being repriced while a fourth vendor takes share of the work.
- Margin and debt capacityProfitability is guided below last year as one-time benefits fade, and the energy acquisition added debt that reduces room to buy back stock.
- Agencies in-source systems integrationGovernment customers are buying commercial software directly and doing more integration themselves, which erodes the role the company has played in large programs.
| Politician | Transaction | Amount | Traded | Filed |
|---|---|---|---|---|
Donald Trump Republican · Executive | Purchase | ≥$1K | Jul 8 | Sep 22 |
Donald Trump Republican · Executive | Sale | ≥$1K | Jun 3 | Aug 22 |
Donald Trump Republican · Executive | Sale | ≥$1K | May 18 | Jul 1 |
Donald Trump Republican · Executive | Sale | ≥$15K | Jan 12 | May 13 |
Alan Armstrong Republican · Senate · OK | Sale (Full) | ≥$15K | Mar 27 | Jul 21 |
Congressional trading data provided by QuiverQuant
How Leidos Holdings turned $17.2B of revenue into $2.1B of operating income.
| Revenue | ||
|---|---|---|
| National Security Solutions | $9.9B | ▲ 3.38% YoY |
| Civil Segment | $5.1B | ▲ 1.18% YoY |
| Defense Solution Segment | $2.2B | ▲ 7.34% YoY |
| Total revenue | $17.2B | |
| Gross profit | $3.1B | 18.0% |
| Operating income | $2.1B | 12.3% |