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On Thursday, UBS analyst Gavin Parsons (NYSE:PSN) maintained a Neutral rating on Leidos Holdings (NYSE:LDOS), with a set price target of $149.00. Parsons focused on the revenue generated by the company’s Veterans Benefits Administration (VBA) exams, which he estimated at $1.8 billion for the year 2024. This figure represents roughly 36% of the revenue for the Health & Civil segment, compared to the $2.2 billion in obligations.
Leidos Holdings announced a two-year extension in 2024, which is expected to contribute to higher revenue and earnings in the near term. Parsons noted that this positive outlook is supported by a combination of stable claims demand and a robust backlog. According to InvestingPro analysis, the company maintains good financial health with an EBITDA of $2.1 billion and trades at a P/E ratio of 14.88. Despite this, the company is also experiencing a decrease in non-VBA obligations, but the overall net obligations are still on the rise.
Looking ahead to 2027 and beyond, Parsons expressed concern that the consensus does not fully account for potential margin pressure once the current extension expires. His analysis suggests that there could be a 50 basis point decline in the consensus 2027 EBITDA margin.
Leidos Holdings, a defense contractor and information technology company, provides services and solutions in the defense, intelligence, civil, and health markets. The extension of the VBA exam contract is a significant factor in the company’s near-term financial performance, as indicated by the UBS analyst’s projections.
In other recent news, Leidos Holdings reported annual revenues of approximately $16.7 billion for the fiscal year ending January 3, 2025. The company has been awarded a $390 million contract by the National Security Agency (NSA) to provide signals intelligence (SIGINT) capabilities, engineering, and analysis tools. This contract includes a base year with four additional option years, highlighting Leidos’ role in delivering critical services to the NSA. Additionally, Leidos announced a partnership with Moveworks to enhance government efficiency using artificial intelligence (AI) solutions, focusing on streamlining administrative tasks for government workers in the U.S., U.K., and Australia.
In a separate development, Leidos’ involvement in a Department of Defense project was affected as the Pentagon decided to cancel its software plan, leading to a 3.6% decline in Leidos’ shares. The canceled project, which was significantly delayed and over budget, was initially valued at around $75 million for Leidos. Despite this setback, Cantor Fitzgerald has maintained its Overweight rating for Leidos with a price target of $185, citing growth opportunities in the Defense and Intelligence sectors. The firm acknowledges risks such as potential challenges in Aero growth and Defense scaling but remains optimistic about Leidos’ ability to navigate these challenges.
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