Leidos Holdings (LDOS) is back in focus after a Jefferies downgrade and fresh concerns about profit margins and U.S. defense budgets, along with additional pressure from changes to a key Defense Health Agency contract.

Leidos Holdings has come under pressure, with the share price down 31.9% over the past 90 days and the 1 year total shareholder return declining 23.2%, although the 3 year total shareholder return of 38.0% still reflects earlier gains. Recent weakness appears closely tied to concerns around defense budgets, margin pressure and the potential loss of the Defense Health Agency role, even as the company highlights projects like its Joint Management Tool for satellite communications as part of its longer term NorthStar 2030 ambitions.

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With Leidos stock down sharply in recent months, yet trading at a sizeable discount to analyst price targets and some valuation models, the key question is whether this is mispricing or if markets are already weighing future growth risks.

Most Popular Narrative: 38% Undervalued

At a last close of $113.58 versus a narrative fair value of $183.27, Leidos Holdings stock screens as materially discounted based on the most widely followed storyline, which leans on long term federal programs and digital contracts to support that gap.

Leidos is positioned to benefit from increased, multi-year government funding focused on national security, defense modernization, border protection, and infrastructure, particularly through the One Big Beautiful Bill and related initiatives (e.g., FAA air traffic modernization, Golden Dome, maritime autonomy), which are expected to drive robust future revenue growth across core projects.

Leidos' continued integration of advanced ai/automation within internal operations and customer offerings is yielding substantial sustained improvement in efficiency (lower indirect costs, faster product delivery), which is expected to support durable margin expansion and enhanced earnings. Read the complete narrative.

Curious how a modest revenue glide path, steady margins and a higher future earnings multiple combine to justify that fair value gap? The narrative lays out detailed assumptions on earnings, cash flows and valuation that go well beyond headline contracts. The full story connects long dated programs, contract quality and balance sheet choices into one valuation bridge.

Result: Fair Value of $183.27 (UNDERVALUED)

However, Leidos Holdings still faces meaningful risks, including heavy reliance on U.S. federal budgets and competition that could pressure margins and reduce higher quality contract wins.

Next Steps

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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.