Leidos' Q3 Beat and Guidance Raise Reinforce Strengths, But Valuation and Risks Remain

What happened

Leidos Holdings delivered strong Q3 2025 results, with Non-GAAP EPS of $3.03 and revenue of $4.5 billion beating estimates, driven by growth in most segments. The company raised its full-year EPS guidance to $11.45-$11.75 and increased its dividend by 7.5%, reflecting management's confidence in ongoing performance. This aligns with the DeepValue report's emphasis on a $46.2 billion backlog and $16 billion in remaining performance obligations, which underpin revenue visibility and cash flow generation. However, the report highlights that shares trade near peer multiples and face persistent risks from U.S. federal budget cycles, competitive pressures, and recent uncertainties like contract terminations. Thus, while operational execution is solid, the overall narrative remains one of balanced risk amid premium pricing.

Implication

The Q3 results and guidance raise demonstrate Leidos' operational resilience and ability to capitalize on government demand, supporting near-term earnings stability. However, with the stock trading at ~17x TTM P/E—in line with peers—there is limited scope for multiple expansion without significant catalysts. The increased dividend and robust backlog offer some downside protection, but investors must closely monitor federal budget appropriations and award timing for signs of sustained momentum. Recent headwinds, such as the DHS contract termination and export-control issues, underscore ongoing regulatory and competitive threats that could impair future growth. Therefore, a cautious approach is warranted, focusing on bookings trends and margin performance before considering a more bullish stance.

Thesis delta

The positive Q3 results and guidance update reinforce the operational strengths noted in the DeepValue report but do not materially shift the HOLD thesis. Valuation remains fair relative to peers, and key risks like budget sensitivity and competitive pressures persist without significant mitigation. Thus, the balanced risk/reward profile is unchanged, warranting continued vigilance on backlog quality and external factors.