Leidos Outperforms Market YTD: Is it the Right Time to Buy the Stock?

Leidos Holdings Inc. LDOS shares have rallied an impressive 3.1% in the year-to-date period, outperforming the S&P 500’s return of 0.1%. The company, however, underperformed the Zacks Aerospace-Defense industry’s growth of 17.5% and the broader Zacks Aerospace sector’s appreciation of 18.6%. 

Other industry players, such as RTX Corp. RTX and Northrop Grumman Corp. NOC, also performed impressively, with their shares rising 17.9% and 3.3%, respectively, year to date.

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?

Being a prominent aerospace-defense stock, with a diverse product portfolio ranging from cybersecurity technologies to health data analytics, Leidos Holdings enjoys steady order flows from varied sources. These orders culminate in a solid backlog count, which is indicative of the solid demand that LDOS’ products enjoy across diverse industries. Notably, LDOS ended the first quarter of 2025 with a backlog of $46.30 billion, reflecting an improvement over the prior quarter's level of $43.55 billion.  

Such improved backlog count bolsters the company’s future revenue generation prospects and, in turn, must have boosted investors' confidence in this stock’s profitability, which was reflected in the form of the share price rise as mentioned above. 

The company’s sturdy financial health is likely to have also compelled investors to stay invested in this stock. Leidos Holdings’ cash and cash equivalents totaled $0.84 billion at the end of the first quarter of 2025, while its current debt totaled $0.12 billion. By doing a comparative analysis of these figures, we may safely conclude that the company holds a strong solvency position in the near term. Moreover, its current ratio of 1.54 as of April 4, 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 Holdings?

The current macroeconomic and geopolitical environment is enhancing growth prospects for Leidos Holdings, supported by heightened global tensions and the U.S. administration’s strong commitment to increased defense spending. In May 2025, a White House report confirmed President Trump’s proposal to raise the defense budget by 13% to $1.01 trillion for fiscal 2026. A key feature of this proposal is substantial investment in the "Golden Dome"—a next-generation missile defense shield aimed at protecting the U.S. from adversarial threats.

To this end, Leidos Holdings believes that it is well-positioned to play a critical role in the Golden Dome initiative, given its advanced air and missile defense capabilities, including its ongoing contribution to the defense of Guam. 

With a focus on cutting-edge defense solutions, LDOS is thus well-positioned for sustained long-term growth amid the aforementioned background.

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 2.7% and 3.2%, respectively, year over year. A similar improvement is suggested by the annual estimates for earnings as well. 

The Zacks Consensus Estimate for LDOS’ 2025 and 2026 earnings per share has moved north 1.8% and 1%, respectively, over the past 60 days. The upward revision in earnings estimates indicates analysts’ increasing confidence in the stock’s earnings growth capabilities.

Risks to Consider Before Choosing LDOS Stock

Despite strong growth prospects, Leidos Holdings faces some challenges that one should consider before investing in the stock. A major concern is the ongoing labor shortage in the aerospace-defense sector. According to the 2024 Aerospace Industries Association (AIA)-PwC Workforce Study, industry attrition remains high at 13%, well above the U.S. average of 3.8%, driven by retirements and turnover. This talent gap may lead to production delays and quality issues, affecting Leidos Holdings’ ability to meet delivery timelines. Other industry players like NOC and RTX are facing this labor shortage crisis. 

Furthermore, the imposition of U.S. tariffs on major trading partners raises input costs and supply chain uncertainties. If such trade restrictions intensify, Leidos Holdings could face increased production expenses and material shortages, ultimately impacting its operational efficiency and profitability.

LDOS Stock Trading at a Discount

In terms of valuation, LDOS’ forward 12-month price-to-earnings (P/E) is 13.49X, a discount to its industry’s average of 26.42X. This suggests that investors will be paying a lower price than the company's expected earnings growth compared to that of its industry.

Its industry peers are also trading at a discount to the industry average. RTX is trading at a forward 12-month P/E of 21.71X, while Northrop is trading at 18.11X.

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

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