Defense IT specialist Leidos Holdings (NYSE:LDOS) beat quarterly expectations, but investors apparently were hoping for more. Leidos shares fell 7% at market open Tuesday and were down 5% as of 11 a.m. ET.
Margin softness in an otherwise strong quarter
Leidos is the largest of the so-called "Beltway Bandits" -- defense companies that provide IT and other services to military, intelligence, and civilian agencies. The company earned $2.37 per share in the fourth quarter on revenue of $4.4 billion, surpassing Wall Street's $2.28 per share on $4.1 billion consensus estimate.
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CEO Tom Bell said in a statement:
2024 was a fantastic year for Leidos, as we delivered robust results at or above the high end of our guidance range across all metrics. The fourth quarter was especially strong in revenue growth and business development, driven by our focus on the enduring, mission-critical needs of our customers.
However, some of the underlying numbers were not so rosy. The company's health services and other civilian programs led the way, but margins at the company's defense and intelligence units were below expectations. Part of that appears to be a one-time issue. Leidos took a write-down on an airborne surveillance business that ate into profitability.
Is Leidos Holdings stock a buy?
Leidos guided for $10.35 to $10.75 per share in earnings in 2025 on revenue of $16.9 billion to $17.3 billion, in line with Wall Street expectations. The company posted a strong 1.7 book-to-bill ratio in the quarter, a measure of future business booked relative to what was billed and ended the year, with a backlog of $43.6 billion in future business.
In short, there is nothing wrong with Leidos' business. But in an environment full of uncertainty as Washington focuses on efficiency and contracting reform, there are also compelling reasons for investors to look elsewhere.
For long-term-focused investors willing to stomach potential near-term volatility, Leidos' shares appear attractively priced at these levels.
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Lou Whiteman has positions in Leidos. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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