While Leidos Holdings Inc (NYSE:LDOS) has a strong defense portfolio well aligned with the U.S. Department of Defense’s priorities, the impact is offset by intensifying pressure across the “once blooming” health care portfolio, according BofA Securities.
• Why are LDOS shares at support?
The Leidos Holdings Analyst: Analyst Mariana Perez Mora downgraded the rating from Buy to Neutral, while cutting the price target from $200 to $125.
The Leidos Holdings Thesis: Leidos is an American defense, aviation, information technology and biomedical research company.
The company booked awards worth $8 billion over the past 15 months, and management projected awards of $9 billion more in the next 12 months, but growth continues to “get deferred,” Mora said in the downgrade note.
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Headwinds from certain programs winding down could offset Leidos Holdings’ overall growth for the next couple of years, the analyst stated. So, while the company’s defense portfolio does present opportunities, investors are unlikely to price in their full value until results begin to materialize, she added.
Leidos Holdings’ managed health care business had been a “standout performer,” the analyst noted. She added, however, that there is downward pressure in the near term from:
- DHMSM (Defense Healthcare Management System Modernization) is winding down and DHA (Defense Health Agency) is still trying to work directly with suppliers
- MDE (Medical Disability Exams) is up for recompete, weighing on the company’s market share and pricing power
“While we anticipate LDOS will be able to leverage its existing capabilities and network to win business in managed health (like recent Military OneSource), increasing competition in the health care sector limits future upside,” Mora further wrote.
LDOS Price Action: Shares of Leidos Holdings had declined by 2.94% to $110.24 at the time of publication on Wednesday.
