Leidos’ fourth quarter results were met with a negative market response, as revenue came in below analyst expectations, reflecting a 3.6% decline year over year. Management attributed the shortfall primarily to the effects of a six-week U.S. government shutdown and the absence of an extra work week that benefited the prior year’s results. CEO Thomas Bell emphasized that, after normalizing for these factors, underlying business demand was robust, especially in integrated air defense and cyber. However, the market remained cautious given the headline revenue miss, despite continued margin improvement and solid backlog growth.
Is now the time to buy LDOS? Find out in our full research report (it’s free for active Edge members).
Leidos (LDOS) Q4 CY2025 Highlights:
- Revenue: $4.21 billion vs analyst estimates of $4.31 billion (3.6% year-on-year decline, 2.5% miss)
- Adjusted EPS: $2.76 vs analyst estimates of $2.61 (5.9% beat)
- Adjusted EBITDA: $556 million vs analyst estimates of $538.5 million (13.2% margin, 3.2% beat)
- Adjusted EPS guidance for the upcoming financial year 2026 is $12.25 at the midpoint, missing analyst estimates by 0.6%
- Operating Margin: 11.2%, up from 9.6% in the same quarter last year
- Backlog: $49 billion at quarter end, up 12.5% year on year
- Market Capitalization: $21.74 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Leidos’s Q4 Earnings Call
- Seth Michael Seifman (JPMorgan) asked how increased capital expenditures would support defense growth and whether co-investment opportunities with the Department of Defense were central to this strategy. CEO Thomas Bell clarified that investments were targeted across all growth pillars, not just defense, and included health and transportation projects.
- Kenneth George Herbert (RBC Capital Markets) probed expectations for continued strong bookings and pipeline trends, seeking clarity on whether award activity and order backlog could accelerate further. CFO Christopher Cage explained that ongoing investments in growth functions and leadership have purposefully driven recent book-to-bill strength, and management expects these trends to continue.
- Gautam J. Khanna (TD Cowen) focused on the upcoming VA medical exam contract recompete, asking how Leidos would sustain profitability amid increased competition. CEO Bell responded that ongoing investments in efficiency and a track record of performance position Leidos well, with volume expected to increase despite market changes.
- Colin Michael Canfield (Cantor) inquired about the conservatism in revenue and margin guidance and the milestones needed to achieve upside. Cage pointed to potential growth from accelerated government funding for programs like Golden Dome and FAA modernization as key variables.
- Scott Mikus (Melius Research) questioned whether AI adoption could drive down prices for digital modernization programs, potentially pressuring margins. Bell argued that AI is seen as a force multiplier for Leidos, both internally and in delivering mission outcomes for customers, rather than a threat to profitability.
Catalysts in Upcoming Quarters
In the quarters ahead, our team will monitor (1) the timing and scale of new government awards, particularly for major defense and infrastructure programs, (2) the pace and impact of capital investments on production capacity and classified facility expansions, and (3) execution of strategic acquisitions and integration of new business lines. Progress in digital modernization and successful backlog conversion will also be key indicators of sustained growth.
Leidos currently trades at $171.93, down from $176.30 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free).
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