Stifel has adjusted its outlook on Leidos Holdings (NYSE: NYSE:LDOS), increasing the price target to $170 from the previous $165 while maintaining a Buy rating on the stock. This change follows the company's second-quarter financial performance, which surpassed market expectations.
Leidos Holdings reported adjusted earnings per share (EPS) of $2.63, which was significantly higher than the consensus estimate of $2.27. Revenue also exceeded forecasts, coming in at $4.13 billion against the anticipated $4.06 billion.
The Health and Civil segment was a key contributor to the quarter's success, with the Veterans Affairs Medical Device Expansion (VA MDE) volumes showing exceptional strength. This segment's adjusted operating income (OI) increased by $169 million year-over-year and $86 million quarter-over-quarter, partly due to an additional quarter of incentives.
As a result of the strong performance, Leidos has raised its guidance for several financial metrics. The company now expects an increase of $50 million at the midpoint for sales, an improvement of approximately 25 basis points in adjusted EBITDA margin, and an increase of $0.20 at the midpoint for adjusted EPS.
The National Security & Digital segment also showed a robust quarter, boasting a 10.4% margin and securing a significant task order win on the $11.5 billion Defense Enclave Services (DES) contract. This win is expected to boost sequential sales after a modest growth of 1.2% in the second quarter.
Despite these positive results, the Commercial & International segment faced challenges with a lower adjusted operating margin of 0.7%, impacted by write-downs on contracts in the United Kingdom. However, management anticipates a recovery in margins in the second half of 2024.
InvestingPro Insights
Following Stifel's upgraded price target for Leidos Holdings (NYSE: LDOS), current InvestingPro data provides a deeper financial context for investors considering the stock. The company's market capitalization stands at a solid $20.32 billion, reflecting its significant presence in the market. Leidos Holdings has demonstrated a commendable revenue growth of 7.62% over the last twelve months as of Q1 2024, indicating a robust business model capable of expanding its financial footprint.
An InvestingPro Tip highlights that Leidos has raised its dividend for 5 consecutive years, with the latest dividend yield reported at 0.99%. This consistent increase in dividends could be a sign of the company's strong commitment to returning value to shareholders. Additionally, Leidos is expected to grow its net income this year, which could further reinforce investor confidence in the company's financial health and future prospects.
Investors should note that Leidos is trading at a high earnings multiple, with a P/E ratio of 63.72, which adjusts to a more moderate 24.42 for the last twelve months as of Q1 2024. This could suggest that the market has high expectations for the company's future earnings growth. For those looking for more insights, there are 13 additional InvestingPro Tips available for Leidos Holdings, which can be accessed with a subscription. To enhance your investment analysis, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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