Executive Summary / Key Takeaways

• Leidos Holdings, Inc. is executing its "North Star 2030" strategy, aligning its digital and mission innovation capabilities with critical government and commercial priorities, driving robust financial performance and future growth.
• The company delivered strong financial results in 2024, exceeding prior guidance, and continued this momentum into 2025 with consistent revenue growth, expanding EBITDA margins, and increased EPS, leading to multiple guidance raises.
• Technological differentiators, particularly in AI-powered solutions like Skywire for energy infrastructure and LAVA for maritime autonomy, are enhancing efficiency, reducing costs, and strengthening Leidos's competitive moat in high-demand markets.
• Leidos maintains a healthy balance sheet, actively deploying capital through strategic acquisitions (e.g., Kudu Dynamics), share repurchases, and increased dividends, reflecting confidence in its cash generation and long-term value creation.
• Despite a dynamic market environment, including government efficiency initiatives and shutdowns, Leidos's diversified, mission-essential portfolio and focus on outcome-based contracting provide resilience and position it for accelerated growth in 2026 and beyond.

A Foundation of Innovation: Leidos's Strategic Imperative

Leidos Holdings, Inc., founded in 1969, has evolved into a technology and industry leader, dedicated to making customer outcomes "smarter and more efficient." Headquartered in Reston, Virginia, the company serves a broad spectrum of government and commercial clients, leveraging its expertise in digital and mission innovations. This foundational commitment to efficiency and innovation underpins its "North Star 2030" strategy, a meticulously crafted plan designed to capitalize on growing customer needs, robust market profitability, and Leidos's accelerating differentiation.

The North Star 2030 strategy is built upon five key growth pillars: space and maritime, energy infrastructure, digital modernization and cyber, mission software, and managed health services. These pillars are strategically aligned with the priorities of the U.S. administration, including IT modernization, transformational warfighting capabilities, and increased privatization of essential citizen services. This alignment positions Leidos to thrive in an environment that increasingly rewards agile, forward-leading solution providers.

Technological Edge: Driving Efficiency and Competitive Advantage

Leidos's competitive advantage is deeply rooted in its technological differentiation and relentless pursuit of innovation. The company consistently integrates cutting-edge technologies, particularly artificial intelligence (AI), across its offerings to deliver quantifiable benefits to its customers.

In the energy infrastructure sector, a key growth pillar, Leidos's proprietary software product, Skywire, powered by Leidos Trusted Mission AI, is revolutionizing distribution system engineering. This platform has been used to optimize approximately 18,000 projects for 25 major utilities over the past 12 months, routinely reducing project costs by 30% and increasing revenue on over half of its top accounts by 50%. Beyond Skywire, Leidos is deploying advanced analytics in drone fleets for real-time grid damage intelligence, addressing a need that costs utilities billions annually, and is investing in AI-assisted defensive cyber solutions to protect critical energy grids. The company is also collaborating with small modular and microreactor OEMs to prototype nuclear reactors for secure military-grade energy sources.

Within the space and maritime domain, Leidos has made significant strides in autonomous systems. Its Leidos Autonomous Vessel Architecture (LAVA) has demonstrated endurance, long-range capacity, and precision, sailing over 120,000 nautical miles. This proven technology is central to the U.S. Navy's plans to rapidly deploy a larger integrated fleet of manned and unmanned vehicles. Leidos developed an unmanned undersea multi-mission vessel in less than 18 months at a significantly lower price than comparable offerings, and designed and deployed a small unmanned surface vehicle called Archer in under 9 months. These advancements highlight Leidos's ability to combine rapid prototyping with mission systems, offering affordable mass warfighting capabilities. The company is also developing a new class of small cruise missiles, achieving dramatic cost savings through modular design and AI optimization.

Leidos's internal operations also benefit from AI adoption, with the company on track to save over 0.5 million labor hours by the end of fiscal year 2025 through generative AI in proposal writing (20% greater efficiency), advanced automation in finance (40% decrease in invoice delivery time for select customers), and AI-powered coding tools for software developers (over 30% reduction in time to deliver ready-to-test code). This internal efficiency translates directly into improved profitability and competitiveness for its customers.

Competitive Landscape and Strategic Positioning

Leidos operates in a highly competitive environment, vying with major defense contractors and emerging technology firms. Its primary direct competitors include Lockheed Martin , General Dynamics , Northrop Grumman (NOC), and Raytheon Technologies (RTX), all of whom have significant government relationships and technological capabilities. However, Leidos differentiates itself through its agile approach, deep expertise in digital and IT services, and a strategic focus on outcome-based contracting.

Compared to larger, more hardware-centric players like Lockheed Martin (LMT) and General Dynamics (GD), Leidos's strength lies in its ability to integrate complex IT systems, cybersecurity, and data analytics across diverse government and commercial sectors. While these competitors excel in large-scale aerospace and defense hardware, Leidos's value proposition emphasizes faster innovation cycles and more adaptable solutions, particularly in digital transformation projects. For instance, Leidos's gross profit margin (TTM) of 17.61% and operating profit margin (TTM) of 11.87% are competitive within the industry, reflecting its efficient operational model. The company's fixed-price contract mix has increased to 43% in 2024, up from 39% in 2023, signaling a strategic shift towards more profitable, outcome-based engagements.

Leidos's competitive positioning is further bolstered by its strong government relationships and diversified segment exposure. Its mission-critical programs, such as the Defense Enclave Services (DES) for IT modernization and its support for the Department of Veterans Affairs, provide a resilient revenue base. While direct quantitative market share figures for all niche competitors are not publicly detailed, Leidos's robust performance in areas like managed health services, where it handles record volumes of medical disability exams, suggests a leading position. The company also actively collaborates with partners, as seen in its joint venture Purple Sky, LLC with Sky Solutions, to accelerate federal digital transformation, particularly in health agencies.

Despite the entry of a fourth provider in some regions for VA medical exams, Leidos estimates its share loss due to this new competitor to be less than 1% of its volume, underscoring its strong performance and customer satisfaction. The company's ability to absorb top-line hits from government efficiency imperatives and potential shutdowns, while still improving revenue guidance, highlights the agility and resilience of its diverse portfolio.

Financial Performance and Liquidity

Leidos has demonstrated exceptional financial performance, consistently exceeding expectations and strengthening its balance sheet. In 2024, the company surpassed its three-year performance targets, achieving an organic revenue growth CAGR of 6.6%, an adjusted EBITDA margin of 12.9%, and 100% free cash flow conversion, totaling $3.5 billion in cumulative operating cash flow. The gross debt leverage ratio significantly improved from 3.4x to 2.2x.

The positive momentum continued into 2025. For the nine months ended October 3, 2025, revenues reached $12,967 million, up from $12,297 million in the prior year period. Net income attributable to Leidos common stockholders increased to $1,121 million, compared to $970 million in the same period of 2024.

Third Quarter 2025 Highlights:

• Revenues: $4.47 billion, a 7% increase year-over-year (6% organically).
• Adjusted EBITDA: $616 million, up 3% year-over-year, with an adjusted EBITDA margin of 13.8%.
• Non-GAAP Diluted EPS: $3.05, a 4% increase year-over-year.
• Operating Cash Flow: $711 million, with free cash flow of $680 million, representing a robust 171% conversion ratio.

Segment-wise, National Security Digital revenues grew 8% (7% organically) in Q3 2025, driven by program wins and the Kudu Dynamics acquisition, with an operating margin of 9.5%. Health & Civil revenues increased 6.2% with a record operating margin of 25.2%, primarily due to increased volumes in managed health services. Defense Systems saw an 11.5% revenue increase, though operating income remained consistent due to higher material costs in initial production phases, with an operating margin of 6.4%. Commercial & International revenues were essentially flat, with an operating margin of 6.7%, impacted by product delivery shifts and increased AI investments.

Leidos's liquidity remains strong, with $974 million in cash and cash equivalents and $4.70 billion in debt as of October 3, 2025. The company has no debt principal payments due until 2028, providing significant financial flexibility. Leidos actively manages its capital, having repurchased $850 million worth of shares in 2024 and an additional $100 million in Q3 2025. The company also increased its quarterly dividend to $0.43 per share, a 7.5% increase, marking its third dividend increase in three years. Strategic M&A activity includes the $293 million acquisition of Kudu Dynamics in May 2025, enhancing cyber capabilities, and the divestiture of Varec in October 2025, optimizing its portfolio.

Outlook and Strategic Initiatives

Leidos has consistently raised its 2025 guidance, reflecting strong year-to-date performance and confidence in its strategic direction. The company reaffirmed its revenue guidance of $17 billion to $17.25 billion, raised its adjusted EBITDA margin guidance to high 13s, and increased its non-GAAP diluted EPS guidance to a new range of $11.45 to $11.75. Operating cash flow guidance was reaffirmed at approximately $1.65 billion. This outlook assumes a return to more normal indirect spending and increased investments in the latter half of the year to capitalize on administration priorities.

Management anticipates a "big book-to-bill year" in 2026, driven by a robust pipeline of opportunities, including $69 billion in near-term efforts and $24 billion in bids awaiting adjudication. Key growth drivers for 2026 include the Defense Systems business, the energy infrastructure segment, and ramping intelligence community awards. Leidos expects to see significant customer engagement post-government shutdown on initiatives like Golden Dome, FAA air traffic control modernization, border security, and airport screening modernization.

The company's strategic initiatives are deeply integrated with its technological roadmap. For example, in the Defense Systems segment, Leidos is tracking 10 franchise programs expected to deliver $15 billion in potential value over the next five years, pivoting from R&D to Low-Rate Initial Production (LRIP) and programs of record. This includes air and base defense systems, counter-UAS capabilities, hypersonic missiles, and the Black Arrow small cruise missile. The company is also expanding its contribution to the ARTEMIS program for long-duration space exploration and modernizing Kazakhstan's air traffic control system with its Skyline X system.

Risks and Challenges

Despite a strong outlook, Leidos faces several risks inherent in its operating environment. The company generates approximately 87% of its total revenues from U.S. government contracts, making it susceptible to fluctuations in government spending, budget priorities, and continuing resolutions. The federal government shutdown in October 2025, for instance, may lead to reduced or delayed work and payments, although Leidos's mission-essential programs have largely mitigated the impact.

Legal and regulatory risks also persist. Leidos is involved in various claims and lawsuits, including a Federal Grand Jury Subpoena related to an antitrust investigation and an ongoing SEC inquiry into international operations. While the U.S. Department of Justice closed its inquiry in December 2024, the SEC investigation's timing and outcome remain uncertain. Changes in international trade policies, such as higher tariffs, could also increase costs, though Leidos expects to recover some of these through contractual measures.

The competitive landscape, with both large established players and agile new entrants, necessitates continuous innovation and efficient execution to maintain market share and profitability. Leidos's strategy to pivot away from low-margin work and focus on technically differentiated opportunities aims to address this challenge over the long term.

Conclusion

Leidos Holdings, Inc. stands as a compelling investment opportunity, firmly anchored by its "North Star 2030" strategy and a proven track record of performance in dynamic environments. The company's ability to consistently deliver strong financial results, coupled with its strategic alignment to critical national priorities in digital modernization, cybersecurity, defense systems, and managed health services, underscores its resilience and growth potential. Leidos's technological leadership, particularly in AI-driven solutions for energy infrastructure and maritime autonomy, provides a significant competitive moat, enabling it to offer smarter, more efficient outcomes for its customers and drive superior profitability.

With a healthy balance sheet, a disciplined approach to capital allocation, and a robust pipeline of opportunities, Leidos is well-positioned to accelerate growth in 2026 and beyond. While challenges such as government funding uncertainties and a competitive landscape remain, the company's diversified portfolio, focus on outcome-based contracting, and unwavering commitment to innovation mitigate these risks. Investors looking for a company with strategic clarity, technological prowess, and a strong financial foundation in critical sectors should view Leidos as a key player poised for continued success.