Investment Thesis
Leidos faces stagnant revenue growth (+0.4% YoY) with declining net income (-1.0% YoY), indicating a mature business experiencing margin compression. Elevated leverage (1.20x debt-to-equity) combined with weak interest coverage of 2.7x creates financial risk, particularly given the company's poor return on capital (ROE 6.5%, ROA 2.1%). While positive free cash flow provides near-term stability, the fundamental trajectory is unfavorable.
Strengths
- Positive operating cash flow of $301M demonstrates core business functionality
- Stable operating margin of 11.5% indicates reasonable cost control in services delivery
- Adequate current ratio of 1.40x and quick ratio of 1.29x meet minimum liquidity thresholds
Risks
- Revenue essentially flat at +0.4% YoY growth; business shows minimal expansion capacity
- Interest coverage of 2.7x is dangerously tight; limited cushion for rate increases or operational decline
- Poor return metrics (ROE 6.5%, ROA 2.1%) indicate inefficient capital deployment and weak management returns
- Elevated leverage with $6.0B debt vs $457M cash creates refinancing and financial flexibility constraints
- Declining profitability (-1.0% net income YoY) despite flat revenue signals operational headwinds
Key Metrics to Watch
- Revenue growth trajectory and contract pipeline visibility
- Interest coverage ratio trend and debt refinancing schedule
- Operating margin sustainability amid margin compression signals
- Free cash flow conversion and cash balance adequacy relative to debt obligations
Financial Metrics
Revenue
4.4B
Net Income
328.0M
EPS (Diluted)
$2.56
Free Cash Flow
270.0M
Total Assets
15.4B
Cash
457.0M
Profitability Ratios
Gross Margin
N/A
Operating Margin
11.5%
Net Margin
7.5%
ROE
6.5%
ROA
2.1%
FCF Margin
6.1%
Balance Sheet & Liquidity
Current Ratio
1.40x
Quick Ratio
1.29x
Debt/Equity
1.20x
Debt/Assets
67.1%
Interest Coverage
2.75x
Long-term Debt
6.0B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-05-07T09:35:15.861135 |
Data as of: 2026-04-03 |
Powered by Claude AI