Leidos Holdings (NYSE:LDOS): quality government and infrastructure services at a trough multiple.

Leidos is one of the largest US government services contractors, formed from the SAIC split in 2013, with roughly 50,000 employees and $17.2B in annual revenue. The business spans four segments: National Security & Digital (military intelligence software, cyber operations, classified work), Health (Military OneSource, electronic health records, medical exams for federal agencies), Civil (FAA, NASA, airport security), and Defense Systems (hypersonic weapons, air defense launchers, sensor integration). The March 2026 acquisition of ENTRUST Solutions Group for $2.4B doubled the presence in energy infrastructure, adding 3,100 grid and gas engineers and broadening the customer base beyond pure federal. The moat is regulatory, security-clearance-based, and built on decades of institutional knowledge of legacy systems that competitors cannot replicate without years of investment. Engineering services tied to certified, mission-critical work, closer in moat profile to Alten than to commodity IT services. The market is treating it like a federal-budget-cut casualty despite operational performance running ahead of plan and a contract pipeline that suggests the opposite.

This looks like a quality business at a trough multiple.

* **Forward P/E around 8x**, against the federal services peer median around 17x. Trading at roughly half peer multiples.
* **Backlog $48.4B**, nearly three years of revenue visibility on signed contracts.
* Q1 2026 revenue up 4% to $4.4B, beating consensus by 2.8%. Non-GAAP diluted EPS $3.13, up 5%. Adjusted EBITDA margin 14.0%. Full-year guidance raised.
* **$4.6B in new contract awards in three weeks** in April and May, including $2.7B for Army hypersonic weapons, $617M for air defense launchers, $869M for an AI services contract, and $456M for Military OneSource.
* ENTRUST acquisition completed March 30 for $2.4B, doubling the energy infrastructure business and diversifying revenue away from pure federal concentration.
* Net debt $5.85B against $2.4B+ EBITDA, gross leverage 2.6x post-ENTRUST. Management retiring the $500M commercial paper portion through 2026 ahead of plan, with $1.4B of bond financing termed out to 2029 and 2036. Free cash flow $270M in Q1 supports natural deleveraging while the $200M Q1 buyback continues.
* ROE 30.6%, ROIC 15.7%. Active dividend at $0.43 quarterly. Share count down 3.9% over the past year.
* Analyst consensus target around $178, with RBC at $180 after a cut from $215 maintaining Outperform.

**Invalidation signature**

* Quarterly book-to-bill ratio drops below 1.0x for two consecutive quarters.
* Backlog falls materially from current $48.4B level.
* Specific high-value program cancellation, particularly hypersonic weapons or air defense.
* ENTRUST integration delivers below the doubled-energy-infrastructure-presence guidance.
* Net debt rises materially through additional acquisitions.

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