Leidos Holdings (LDOS) is back in focus after reporting fourth quarter and full year results that paired slightly lower quarterly revenue with higher net income and earnings per share, along with fresh guidance for 2026 revenue.

The latest earnings and 2026 revenue guidance arrived after a choppy spell for Leidos Holdings' shares, with a 7 day share price return of 9.46% and a 30 day share price return of 9.45%. This contrasts with a 1 year total shareholder return of 35.67% and a 5 year total shareholder return of 101.24%. Together, these figures point to longer term momentum that has recently cooled, despite ongoing contract wins, partnerships around AI governance and cybersecurity automation, and a reaffirmed quarterly dividend. The stock closed at US$176.30, with a 1 day share price return of 2.83% following the results. The 3 year total shareholder return of 82.80% shows how much of the value creation has come over a multi year period rather than just recent trading sessions.

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With earnings per share moving higher, fresh 2026 revenue guidance and the stock trading at a discount to the average analyst price target, the key question is whether Leidos is still undervalued or if the market is already pricing in future growth.

Most Popular Narrative: 22.6% Undervalued

With Leidos Holdings last closing at $176.30 and the most followed narrative pointing to a fair value of $227.73, the gap between price and narrative view is wide enough to make investors pause and ask what is driving that difference.

Leidos is entering its February 17, 2026, earnings call in a unique "valuation gap." While the stock is trading near $176, our DCF analysis suggests an intrinsic floor of $227, representing a 29% upside. The current market hesitation stems from "leverage shock" following the $2.4 billion acquisition of ENTRUST Solutions Group. Investors are currently hyper-focused on the $1.4 billion in new debt required to close the deal. However, this focus overlooks the massive operational synergy: Leidos is doubling its energy infrastructure business exactly as the U.S. enters a $1 trillion grid modernization cycle driven by AI power demand. For the upcoming Q4 report, the narrative will likely shift from how much they paid to how fast they can integrate. Analysts are looking for a beat on the $2.54 EPS consensus and, more importantly, a revision of the 2026 FCF guidance to reflect the ENTRUST accretion.

4. The Story

The story of Leidos in 2026 is the transformation of a "stuffy" government contractor into an AI-infrastructure powerhouse. For years, Leidos was the quiet engine behind the Pentagon’s IT, but under the "NorthStar 2030" strategy, they have weaponized their balance sheet to own the two most critical bottlenecks in the modern economy: Power and Sovereign Intelligence.

The Sovereign AI Catalyst: Earlier this year, Leidos signed a landmark partnership with OpenAI to deploy secure, generative AI across federal agencies. This is not just a software resale; it is a high-margin integration play. As federal agencies scramble to automate legacy bureaucracy, Leidos sits at the gate as the trusted "sovereign" middleman.

The Strategy for Earnings:

Curious what sits behind that higher fair value for Leidos? The narrative leans heavily on future cash flow strength, margin resilience and a profit multiple usually associated with faster growing tech names. Want to see which revenue and earnings paths have been baked into that $227.73 figure, and how much of it leans on grid modernization and sovereign AI work with federal agencies?

Result: Fair Value of $227.73 (UNDERVALUED)

However, this story can change quickly if the ENTRUST integration drags on, or if those high margin VA medical exam contracts face renewal delays or pricing pressure.

Next Steps

Given this mix of optimism and caution, it makes sense to check the underlying data yourself and move quickly to form your own view using 5 key rewards and 1 important warning sign.

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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.