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Investing.com -- Jefferies upgraded Leidos Holdings (NYSE:LDOS) to Buy from Hold citing the reduced margin risk and improving growth visibility across defense and government programs.
The brokerage raised its price target to $205, implying upside driven by a re-rating closer to historical valuation levels.
Jefferies pointed to Leidos’ exposure to U.S. government priorities, including the FAA, border surveillance, and defense modernization, as tailwinds for roughly half of its revenue.
Recent wins, including a multi-billion-dollar classified program secured in July, support confidence in the second-half setup, it said.
The firm also highlighted the role of artificial intelligence in structurally improving margins, estimating $30 million in cost savings in 2025 from reduced labor hours.
That, along with higher VA incentive fees and cost-out initiatives, supports the company’s updated full-year margin guidance in the mid-13% range, up from 12.9% in 2024.
Leidos raised EPS guidance by 7%, though its implied second-half revenue growth slows to ~1% from 5% in the first half. Jefferies called the guidance conservative, with a backlog-to-book ratio of 1.3x and upside from programs like DISA DES and IFPC Increment 2.
Looking ahead, the firm sees organic growth re-accelerating to 5% in 2026, helped by the U.S. Reconciliation Bill, which earmarks $13 billion in addressable funding across areas where Leidos is well positioned. EPS is forecast at $11.85 for 2026, ahead of the Street.
Jefferies estimates each 10-basis-point margin increase adds about $0.15 to EPS, reinforcing the upside if AI-driven efficiencies continue.