Breaking Down Leidos Holdings, Inc. (LDOS) Financial Health: Key Insights for Investors

You're looking at Leidos Holdings, Inc. (LDOS) and wondering if the defense and IT services giant can keep its momentum, especially with government spending cycles being so defintely unpredictable. The short answer is yes, they are executing well; the company just posted a second guidance raise for the year, projecting full-year 2025 revenues between $17.0 billion and $17.25 billion and adjusted earnings per share (EPS) in the $11.45 to $11.75 range. This isn't just paper growth, either: their Q3 revenue hit $4.47 billion, up 7% year-over-year, and they're sitting on a near-term pipeline of opportunities valued at roughly $69 billion, which gives them incredible revenue visibility for years to come. That huge backlog acts as a serious buffer against the political noise, plus their strategic push into AI-powered cyber solutions and energy infrastructure is showing real returns, like the Skywire platform that's already optimizing thousands of projects. It's a clear signal that their diversification strategy is working, but the question now is how much of that stability is already priced into the stock, and what are the next catalysts you should be watching.

Revenue Analysis

You're looking for a clear picture of where Leidos Holdings, Inc. (LDOS) makes its money, and honestly, it's a story of resilient government contracting with a strong push into defense technology. The direct takeaway for the 2025 fiscal year is that Leidos is on track for revenues between $17.00 billion and $17.25 billion, a reaffirmation of their guidance that signals stability despite macro headwinds like the government shutdown.

The company's primary revenue source is its vast portfolio of technology and engineering services, which span the defense, intelligence, civil, and health markets. This diversification is key to their stability. For the third quarter of 2025 (Q3 2025), Leidos reported total revenues of $4.47 billion, marking a strong 7% year-over-year increase. That's a solid growth rate for a company of this size, and it shows their mission-critical work is paying off.

Here's the quick math on where that revenue actually comes from, broken down by their core business segments for Q3 2025. This shows you exactly which parts of the business are accelerating:

What this breakdown shows is that Defense Systems is the clear growth leader, clocking in at an 11.5% year-over-year increase in Q3 2025, primarily fueled by demand for innovative military products like integrated air defense systems. The National Security & Digital segment is the largest contributor by far, pulling in over $2 billion in the quarter. That's the engine room of the company.

To be fair, the slight revenue dip in the Commercial & International segment-down 1.2%-is a minor issue, mostly reflecting a product mix shift within their security products business, but it's partially offset by strong demand for energy infrastructure engineering services. The company is defintely leaning into strategic growth areas, which they call their North Star 2030 strategy, focusing on things like space and maritime, and digital modernization. The acquisition of Kudu Dynamics, for example, added $26 million in revenue to the National Security & Digital segment in Q3 2025 alone. That's how you buy growth.

The overall picture is one of managed, organic growth (6% organically in Q3 2025) complemented by strategic acquisitions, keeping the company aligned with high-priority government spending. You can dive deeper into the full analysis in our post: Breaking Down Leidos Holdings, Inc. (LDOS) Financial Health: Key Insights for Investors.

• Defense Systems is the fastest-growing segment.
• National Security & Digital is the largest revenue source.
• Acquisitions like Kudu Dynamics are targeted growth accelerators.

Profitability Metrics

You're looking for a clear picture of how efficiently Leidos Holdings, Inc. (LDOS) turns its massive revenue into profit, and the 2025 data shows a strong, margin-defending performance in a tough sector. The company's profitability ratios for the third quarter of fiscal year 2025 demonstrate a solid operational footing, especially when you consider the scale of their government and defense contracts.

Here's the quick math on their core margins for the quarter ending September 30, 2025:

• Gross Margin: 18.40%
• Operating Margin: 11.79%
• Net Margin: 8.20%

The gross profit margin of 18.40% is particularly telling for a government services contractor; it shows the company is managing its direct costs-the cost of services and materials-very well. This margin is what's left after paying for the direct execution of their contracts. The drop-off to the operating margin of 11.79% covers all the overhead, like R&D and administrative expenses, which is a manageable spread. Finally, the net margin of 8.20% is the true bottom-line figure, representing $369 million in net income on $4.47 billion in revenue for the quarter.

Operational Efficiency and Margin Trends

Leidos Holdings, Inc. isn't just maintaining margins; they are showing an upward trend, which is a sign of effective cost management and a successful shift toward higher-value contracts. The net profit margin has improved to 8.1% from 7.4% in the prior year, despite widespread industry margin pressures. This is defintely a key indicator of operational efficiency.

We see this improvement clearly in the gross profit trend. The trailing twelve months (TTM) gross profit ending September 30, 2025, was $3.053 billion, marking a 13.07% increase year-over-year. This growth outpaces their overall revenue growth, suggesting they are either securing better-priced contracts or becoming more efficient at delivering their services-likely a combination of both. The shift toward premium-priced digital and AI-driven contracts is a major driver here, supporting margin durability.

Here is a snapshot of the forward-looking profitability, based on the company's raised guidance for the full fiscal year 2025:

• FY 2025 Revenue Guidance: $17.00 - $17.25 billion
• FY 2025 Adjusted EBITDA Margin Guidance: High 13%

Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) margin is a non-GAAP measure, but it's a great proxy for core operating performance, and 'High 13%' shows management's confidence in their ability to control costs below the gross profit line.

Benchmarking Leidos Holdings, Inc. Against the Industry

To be fair, the defense and government services sector is generally a lower-margin business than, say, pure-play software, but Leidos Holdings, Inc.'s figures stack up well against its peers. Their focus on technology and modernization initiatives is helping them earn a premium over the industry average.

Here's a comparison of Leidos Holdings, Inc.'s Q3 2025 GAAP margins against the Defense Primes Average, a strong benchmark for the sector:

Leidos Holdings, Inc.'s operating margin is slightly ahead of the defense primes average, but their net margin of 8.20% is significantly higher than the average 5.0%. This suggests that Leidos Holdings, Inc. is not only running its core operations efficiently but is also managing its non-operating expenses, like interest and taxes, more effectively than the peer group, or simply has a better capital structure. For a more detailed analysis, check out the full post: Breaking Down Leidos Holdings, Inc. (LDOS) Financial Health: Key Insights for Investors. Your next step should be to model how a small change in their gross margin-say, 50 basis points-would impact their projected full-year net income.

Debt vs. Equity Structure

You're looking at Leidos Holdings, Inc. (LDOS) and wondering how they fund their operations, and honestly, the picture is one of calculated leverage. The company uses debt more aggressively than many of its peers in the defense sector, but it does so with a clear, strategic purpose: to return capital to shareholders while maintaining a stable credit profile.

As of the second quarter of 2025, Leidos Holdings, Inc. carried a total debt load of approximately $5.7 billion, composed of $119 million in Short-Term Debt & Capital Lease Obligation and $5,583 million in Long-Term Debt & Capital Lease Obligation. This debt is substantial, but it's well-managed, as evidenced by an interest coverage ratio of 10.1x as of October 2025.

Here's the quick math on their capital structure:

The Debt-to-Equity (D/E) ratio, which measures financial leverage (how much debt a company uses to fund its assets relative to the value of shareholders' equity), stood at 1.22 in June 2025. To be fair, this is significantly higher than the average D/E ratio for the broader Aerospace & Defense industry, which is closer to 0.38 as of November 2025. This higher ratio tells you Leidos Holdings, Inc. is comfortable using financial leverage-it's a conscious choice to boost returns on equity, not a sign of financial distress.

They are defintely not afraid to use debt to their advantage.

The company's recent activity confirms this capital allocation strategy. In the first half of 2025, Leidos Holdings, Inc. executed a classic liability management maneuver. They issued $1 billion in new senior unsecured notes-specifically, $500 million due in March 2032 and another $500 million due in March 2035. The proceeds were then used to retire $500 million of its 3.625% Senior Notes that were due in May 2025, pushing out the maturity wall.

What this refinancing action hides is the balance: the other $500 million from the new issuance was immediately used to fund an Accelerated Share Repurchase agreement, effectively returning capital to shareholders. This is how the company balances debt financing with equity funding-they maintain a stable, investment-grade credit rating of 'BBB' from S&P Global Ratings (as of February 2025) while simultaneously using debt to optimize their capital structure and reward investors. They are leveraging their stable government-contract revenue stream to support this level of debt.

Your next step is to drill down into the quality of the company's free cash flow (FCF) generation to ensure it can comfortably service this debt load, especially given the higher D/E ratio compared to the industry. You can find more detail on the full financial picture in the rest of this post, Breaking Down Leidos Holdings, Inc. (LDOS) Financial Health: Key Insights for Investors.

Liquidity and Solvency

You want to know if Leidos Holdings, Inc. (LDOS) has the short-term cash to cover its bills, and the answer is a clear 'yes,' but with the nuance you'd expect from a major government contractor. The company's liquidity position as of the third quarter of 2025 is solid, driven by strong operational cash flow and a balance sheet structure typical for a services firm.

The key takeaway is that Leidos has nearly $1.62 in current assets for every dollar of current liabilities, a very comfortable buffer. This is defintely a strength, especially considering the long-term nature of their government contracts.

Current and Quick Ratios

When we look at short-term financial health, the Current Ratio and Quick Ratio are your first stop. For Leidos Holdings, Inc. as of Q3 2025, the numbers show a healthy capacity to meet near-term obligations.

• Current Ratio: 1.62. (Current Assets / Current Liabilities). This means Leidos has $1.62 in assets convertible to cash within a year for every $1.00 it owes in the same period.
• Quick Ratio: 1.50. (Quick Assets / Current Liabilities). This ratio strips out inventory, which is often harder to liquidate quickly. The fact that the Quick Ratio is so close to the Current Ratio tells you something important about the business model.

The small difference between the 1.62 Current Ratio and the 1.50 Quick Ratio highlights that inventory is a minor component of current assets. For a technology and defense services company, this is normal; they don't hold much physical product inventory, but rather have a lot of receivables from reliable government clients. The low inventory component is a positive sign for liquidity quality.

Working Capital Trends and Analysis

Working capital (Current Assets minus Current Liabilities) is the lifeblood for day-to-day operations. As of Q3 2025, Leidos Holdings, Inc. reported $4.84 billion in current assets against $2.986 billion in total current liabilities. Here's the quick math: that leaves about $1.854 billion in net working capital, a substantial amount. This is a solid position that allows for flexibility, even with the high cash demands of their financing activities.

The working capital trend is supported by a Days Sales Outstanding (DSO) of 60 days in Q3 2025, which is a reasonable collection period for a large-scale contractor. Managing that collection cycle is critical for a company like Leidos, and 60 days shows good control over their accounts receivable.

Cash Flow Statements Overview

The cash flow statement for Q3 2025 shows a strong engine, but also where the cash is being deployed. The company is generating a lot of cash from its core business, which is then used to service debt and return capital to shareholders. This is a mature company profile, but it does mean less cash is left for massive, unbudgeted capital expenditures.

The $711 million in cash flow from operations (CFO) in a single quarter is excellent. It easily covers the minimal capital expenditures of $36 million (CFI). The biggest cash use is in financing, where Leidos Holdings, Inc. paid down term loan principal by $450 million and returned $153 million to shareholders through dividends and buybacks. The cash is flowing, but it's quickly being allocated to debt reduction and shareholder value.

To understand the strategic implications of these movements, you should check out Exploring Leidos Holdings, Inc. (LDOS) Investor Profile: Who's Buying and Why?

Potential Liquidity Strengths and Concerns

The primary strength is the quality of Leidos Holdings, Inc.'s cash flow. The vast majority of their revenue comes from stable, long-term government contracts, making their operating cash flow highly predictable. Plus, the $974 million in cash and cash equivalents as of October 3, 2025, provides a healthy immediate buffer.

The main concern isn't liquidity, but solvency and capital allocation. The company is carrying $4.7 billion in total debt. While the company is actively paying it down-evidenced by the $450 million principal payment in Q3 2025-that debt load requires continuous monitoring. The consistent, high-volume negative cash flow from financing activities is a deliberate choice to manage this debt and reward shareholders, but it limits the immediate cash pile for a major acquisition or unexpected crisis. Still, the strong CFO generation provides a clear path to managing this debt.

Valuation Analysis

You're looking at Leidos Holdings, Inc. (LDOS) and asking the core question: Is the stock priced fairly, or are we paying a premium for future growth that might not materialize? As of late 2025, the market is giving Leidos a solid, but not excessive, valuation, leaning toward a Moderate Buy consensus from Wall Street.

The key is to compare its current trading multiples-like Price-to-Earnings (P/E)-against its industry peers and its own historical average. Honestly, Leidos is not a deep value play, but it still shows reasonable pricing for a defense and IT services leader with strong backlog growth.

Here's the quick math on the core valuation metrics for fiscal year 2025:

• Trailing P/E Ratio: The current P/E is around 17.46. This is based on the last twelve months of earnings.
• Forward P/E Ratio: The forward P/E, using the 2025 earnings estimates, drops to about 16.11. This suggests analysts expect earnings per share (EPS) to rise, which makes the stock look cheaper on a forward basis.
• Price-to-Book (P/B) Ratio: The P/B sits at roughly 4.86. For a high-tech services company, this is typical; they rely more on intellectual capital and contracts than on hard assets, so a high P/B isn't a red flag, but it does signal a premium for intangible value.
• EV/EBITDA Ratio: The Enterprise Value-to-EBITDA ratio is about 12.03. This metric (Enterprise Value is market cap plus debt minus cash, divided by earnings before interest, taxes, depreciation, and amortization) is a great way to compare companies with different debt loads. It's a bit above the defense sector average, suggesting the market values Leidos's cash flow generation power.

What this estimate hides is the quality of their earnings, which stems from a massive, mission-critical backlog. For more on the strategic direction driving these numbers, you can read the Mission Statement, Vision, & Core Values of Leidos Holdings, Inc. (LDOS).

Stock Performance and Analyst Sentiment

The stock has defintely had a strong run over the past year. Over the last 12 months, the stock price has climbed approximately 12.59%, reflecting solid operational execution and raised guidance. The 52-week range tells an important story, moving from a low of $123.62 to a high of $205.77. The current price of around $186.49 puts it closer to the high, which is why the valuation multiples are elevated.

The analyst community is generally bullish. Out of 17 Wall Street analysts covering Leidos, 10 have a Buy rating, and 7 have a Hold rating, resulting in a consensus of Moderate Buy. The average 12-month price target is $199.23, which implies a modest upside of about 6.88% from the recent price. This suggests the bulk of the good news is already baked into the current stock price, but there's still room for appreciation if they continue to beat their raised fiscal year 2025 EPS guidance of $11.45 to $11.75.

Dividend Health Check

Leidos is not a high-yield stock, but it does offer a reliable, growing dividend, which is a nice bonus for long-term investors. The Board of Directors declared a quarterly cash dividend of $0.43 per share on October 31, 2025. This translates to an annual dividend of $1.72 per share, giving a current dividend yield of about 0.92%.

The real strength is the payout ratio (the percentage of earnings paid out as dividends). Using the midpoint of the 2025 EPS guidance, the payout ratio is a very conservative 14.83% (calculated as $1.72 annual dividend / $11.60 estimated EPS). This low ratio means the dividend is incredibly safe and has significant room to grow, which is exactly what you want to see for a company reinvesting heavily in its business.

Risk Factors

You're looking at Leidos Holdings, Inc. (LDOS) after a strong performance, with the company raising its 2025 adjusted earnings per share (EPS) guidance to a range of $11.45 to $11.75, up from the prior forecast. But even a company with a massive backlog of $47.7 billion has real risks. The biggest threats are less about their operational execution-which has been solid-and more about the unpredictable nature of their primary customer: the U.S. government.

The core external risk is a sustained government shutdown or sudden policy shifts. While management noted the impact on Q3 2025 operations was minimal, a prolonged closure or major program adjustments, sometimes referred to as 'DOGE' headwinds, could definitely alter project funding and execution timelines. Their defense and intelligence work is mission-essential, which helps, but it doesn't eliminate the risk entirely. Plus, you have to consider the constant threat of increased competition as new entrants try to chip away at their market share.

Here's the quick math on their government exposure: The company's full-year 2025 revenue is still expected to land between $17.0 billion and $17.25 billion, and the vast majority of that is tied to federal contracts. That's a huge concentration of risk. Internally, while they've been proactive in managing debt-paying down $450 million in term loan principal in Q3 2025 alone-they still hold about $4.7 billion in total debt. Higher interest costs on that debt could weigh on future earnings, even with strong revenue growth.

To mitigate these risks, Leidos Holdings, Inc. is executing a clear strategy. They set wider guidance ranges for 2025, which is a smart, proactive hedge against a less predictable government environment. They're also heavily focused on their North Star 2030 strategy, which is all about diversification and innovation, specifically through five growth pillars:

• Invest in Space and maritime.
• Grow energy infrastructure segment.
• Accelerate digital modernization and cyber.
• Develop mission software capabilities.
• Expand managed health services.

The goal is to shift the portfolio toward mission-critical work that is funded and less vulnerable to discretionary budget cuts. They are defintely investing in technology like Artificial Intelligence (AI) and cyber capabilities to maintain a competitive edge and make their customer outcomes smarter. This is how you manage a government-centric business: you diversify your offerings, not your customer base. For a deeper look at the valuation, check out Breaking Down Leidos Holdings, Inc. (LDOS) Financial Health: Key Insights for Investors. Your next step is to model a stress test that assumes a 10% reduction in new contract awards for the next two quarters.

Growth Opportunities

You're looking for a clear map of where Leidos Holdings, Inc. (LDOS) is heading, not just where it's been. The direct takeaway is that Leidos is executing a successful strategic pivot, moving beyond just IT services into higher-margin, technology-driven solutions, and that shift is defintely showing up in their 2025 guidance raises.

The company's growth isn't a vague aspiration; it's anchored in their NorthStar 2030 strategy, which directly aligns with increased, multi-year U.S. government funding priorities like defense modernization and infrastructure. This alignment gives us confidence in their future revenue visibility.

Future Revenue and Earnings Estimates

Leidos has shown strong operational discipline this year, which is why they raised their full-year guidance for 2025-twice. The latest outlook projects total revenue in the range of $17.0 billion to $17.3 billion, which is a solid, predictable top-line performance. More importantly, the focus on margin expansion is driving the bottom line.

Here's the quick math: Non-GAAP diluted Earnings Per Share (EPS) guidance was also increased to a range of $11.45 to $11.75. This EPS growth significantly outpaces the revenue growth, telling you management is laser-focused on efficiency and winning higher-quality contracts. This is a crucial signal for investors.

Strategic Initiatives and Product Innovations

The core of Leidos' future growth lies in its five strategic growth pillars, which are the engines for their NorthStar 2030 vision. These aren't just buzzwords; they represent concrete investment areas that are already yielding results, like the Q3 2025 revenue contribution from a key acquisition.

• Space and Maritime: Leading in maritime autonomy, securing contracts for autonomous surface vessels with the U.S. Navy and Marines.
• Energy Infrastructure: Deploying the AI-enabled Skywire platform, which has already optimized over 18,000 projects for 25 major utilities, routinely reducing project costs by 30%.
• Digital Modernization and Cyber: The May 2025 acquisition of Kudu Dynamics LLC for $300 million immediately enhanced their full-spectrum cyber capabilities and generated $26 million in Q3 revenue.
• Mission Software and Managed Health Services.

The company is also driving internal efficiency through technology. Their internal use of Artificial Intelligence (AI) and automation is on track to save more than 0.5 million labor hours by the end of this fiscal year. That's a direct boost to margins.

Competitive Advantages and Market Expansion

Leidos' primary competitive advantage is its deep, trusted relationship with the U.S. government, particularly the Department of Defense and the Intelligence Community. This creates high barriers to entry for competitors, plus the company has the necessary security clearances and expertise to navigate the complex procurement process.

The sheer size of their opportunity pipeline is staggering: they have a robust $69 billion pipeline of near-term opportunities, with $24 billion of bids awaiting adjudication. That's a significant amount of potential future revenue locked up. You can read more about the foundational strategy that drives this pipeline here: Mission Statement, Vision, & Core Values of Leidos Holdings, Inc. (LDOS).

They are also expanding internationally, recently securing a large award to modernize Kazakhstan's air traffic control system, which shows their ability to translate U.S. government-tested technology to global civil markets. The funded backlog saw a 27% sequential increase in Q3, and the book-to-bill ratio was a healthy 1.3x for the quarter, meaning they are winning new business faster than they are executing on existing contracts.

Next step: Analyze the quality of the contracts within the Defense Systems segment, specifically the 10 franchise programs expected to deliver $15 billion in value over the next five years, to assess margin sustainability.