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LDOS - Embedded Expectations Analysis - 2021 09 20

Leidos Holdings, Inc. (LDOS:USA) currently trades below corporate averages relative to UAFRS-based (Uniform) earnings, with a 16.2x Uniform P/E. At these levels, the market is pricing in bearish expectations for the firm, and management may have concerns about margins, program delays, and wage inflation.

Specifically, management may lack confidence in their ability to sustain adjusted EBITDA margin expansion, Defense Solutions segment organic revenue growth, and Health segment growth. In addition, they may be concerned about wage inflation and the terms of their new $380 million borrowing. Moreover, they may have concerns about the shortening of contract extensions and delays in new programs starts. Finally, management may be overstating their commitment to shareholder returns and the progress of the NGEN contract.
Leidos Holdings

Leidos Holdings is a holding company. Through its subsidiaries, the company is engaged in a science, engineering and information technology that provides services and solutions in the defense, intelligence, civil and health markets. The company's defense solutions segment deploys solutions in the areas of intelligence surveillance and reconnaissance, enterprise information technology, integrated systems, cybersecurity and global services. The company's civil segment integrates and protects physical, digital and data domains. The company's health segment delivers solutions to federal and commercial customers that are responsible for the health and well-being of people including service members and veterans.

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