Is Leidos Holdings (LDOS) Trading At A Discount After New AI And Contract Wins?

Leidos Holdings stock has fallen 37.7% year to date, yet its valuation checks and recent contract and product news are pointing investors back to the numbers on what they are paying for the business today.

• Year to date the share price is down 37.7%, which puts the recent rebound over the past month into context as a move happening after a sizeable pullback.
• New AI focused cybersecurity tools and recent defense contract wins can support sentiment on future revenue, while execution risk in delivering complex government and cyber programs may still weigh on how much investors are willing to pay.
• On Simply Wall St’s broader valuation checks, Leidos screens as relatively cheap with a high value score of 5 out of 6. This suggests the current price leans toward the undervalued side on the core metrics assessed.

The issue now is whether that combination of weak recent returns and a strong value score signals a genuine opportunity in Leidos Holdings or a value trap.

Find out why Leidos Holdings' -28.2% return over the last year is lagging behind its peers.

Is Leidos Holdings a Bargain on Earnings?

The P/E ratio is a useful yardstick for Leidos Holdings because earnings are a key driver for a contract based business like this. Right now Leidos trades on a P/E of about 10.2x, which is well below the Professional Services industry average of 21.8x and also below the peer group average of 36.5x. Based on Simply Wall St’s fair P/E estimate of 19.3x, the stock sits at a sizeable discount to what the model suggests might be appropriate for its profile.

Recent wins such as the new US Air Force ISR support task order and new AI focused cyber products have not pushed Leidos Holdings anywhere near that fair P/E level. The market is still pricing the stock at a lower earnings multiple than typical peers. This gap may reflect ongoing execution risk on complex government and cyber programs. The numbers indicate that investors are currently paying a comparatively low price for each dollar of earnings.

On the P/E yardstick, Leidos Holdings stock currently appears undervalued relative to both its industry and the fair multiple implied by the broader checks.

See what the numbers say about this price — find out in our valuation breakdown.

The Leidos Holdings Narrative: What Would Justify Today's Price?

Simply Wall St Narratives for Leidos Holdings give you a clearer link between the current P/E discount and what would need to happen in future for that gap to close or widen. Each Narrative sets out the specific assumptions for Leidos Holdings' growth, margins and earnings that sit behind its fair value view, so you can compare those expectations with how the company actually reports over time. These are available on Simply Wall St's Community page.

The community is split on Leidos Holdings, with one camp leaning into the NorthStar 2030 and AI logistics story while the other worries those same projects could restrain returns.

Bull case: 46% undervalued

"Rising customer focus on AI-enabled missions and secure digital infrastructure is aligning directly with Leidos Holdings’ broad AI toolset, privileged access to sensitive networks, and federal digital infrastructure footprint…"

Read the full Bull Case to see why Leidos Holdings could be undervalued

Bear case: roughly fairly valued

"Although the company has a large and growing cyber and digital infrastructure pipeline, including a reported US$24b cyber pipeline after the Kudu acquisition, government buyers may reprioritize or delay awards as they refine long-term architectures…"

Read the full Bear Case to see why Leidos Holdings could be overvalued

Do you think there's more to the story for Leidos Holdings? Head over to our Community to see what others are saying!

The Bottom Line

Leidos Holdings screens as undervalued on its current earnings multiple, which suggests the market is still cautious about how reliably it can convert its contract and AI focused cyber pipeline into profits. The broader valuation checks look supportive, yet they do not remove the concern that complex government and cyber programs can run into delays, scope changes or margin pressure. For you as an investor, the key question is whether that discount reflects undue pessimism or a realistic price for the execution risk that comes with Leidos Holdings' contract mix.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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