Leidos: Under the Radar Play in Defense

10/26/2017 5:00 am EST

Focus: INDUSTRIALS

Briton Ryle

Editor, The Wealth Advisory

Leidos (LDOS) is not a household name; but we did our research and found out that, by contract dollar value, it was the seventh largest U.S. government contractor out there, explains Brit Ryle, editor of The Wealth Advisory.

Since it was one of the very few that hadn’t shot up astronomically yet, we decided to go all in. And it’s paid off big time. We’re up over 30% and, even after the rally, I'm still seeing an undervalued stock with a massive amount of room to run much higher.

The company keeps adding new contracts to its revenue stream, and that keeps boosting our share price. Most recently, management here inked deals worth a total of $72 million with both the Defense Intelligence Agency and the Department of Energy.

That’s in addition to the billions of dollars in contracts the company already added this year. I recommend buying this stock on any dips. There’s easy upside to $75.

The stock is trading with P/S and P/B ratios well below the industry average. Even trailing P/E is slightly lower than the company’s peers. And when you look ahead, even with all its success priced into the stock, forward P/E is still incredibly low at 16.7.


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Don’t even get me started on the PEG ratio (a comparison of the price-to-predicted-earnings growth). It’s at zero right now. This means that there’s no growth priced into the stock. But there’s plenty of earnings growth coming; it’s been happening all year.

But all that aside, all you really have to do is take a look at the amount and dollar value of all the contracts awarded to Leidos this year, and you’ll see what I mean.

Management reports third-quarter earnings on November 2nd. So far, since we’ve been invested, earnings have gone up an average of 17.75% per quarter. I’m pretty sure that we’ll continue seeing this trend as we move forward.

This means that we’ll likely see EPS come in around $1.23. And with analysts only predicting $0.82, we'll be in store for a huge post-earnings rally. This will be a 49% earnings beat and will really get investors to jump on board. Add to your position before earnings come out early next month. The rally is far from over.

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