Leidos (LDOS): 12% Beat, Zero Real Growth, $48.7B Backlog. Is LDOS Stock a Buy?

Leidos Holdings, Inc. (LDOS) Q2 2026 — Reported Aug 4, 2026 BEFORE the open, for fiscal Q2 2026 - the 4-4-5 quarter ended JULY 3 (not June 30). Revenue $4,558M, +7% (+4% organic) vs ~$4,437M expected. Non-GAAP EPS $3.26 vs $2.91 - a 12.0% beat, but only +1.6% on $3.21 a year ago. GAAP EPS $2.81, DOWN 7%. FCF $761M vs $457M. Bookings $4.9B, book-to-bill 1.1, backlog $48.7B, funded backlog +44%. FY26 guidance raised again. LDOS closed $130.60, UP 10.0% - still 35% below its $199.55 high. Leidos beat 12%, raised guidance and jumped 10% - and non-GAAP net income still FELL 1.4%, from $417M to $411M. Diluted shares went 130M to 126M, so at a flat share count EPS would have been $3.16, a DECLINE. The buyback did all of it, and the buyback is fading. Adjusted EBITDA margin dropped 140bp to 13.8% and operating income FELL 10% on revenue up 7%, because Health - 24% of revenue but 44% of segment profit at a 23.4% margin - shrank 8%. THE CALL: BUY (4/5, PRICED FOR DECLINE, BOOKING FOR GROWTH) — base-case value ~$165.0 vs ~$130.6 today. KEY METRICS: - CALL: BUY 4/5, fair value ~$165 vs $130.60 - ~26% upside. Enterprise FCF DCF: H1 FCF $1,031M ($1,094M OCF less $63M capex); FY26 guided OCF ~$1.85B so ~$1.72B FCF, we model $1.70B growing 3.5% for three years then 2.5%, 2% terminal, 9% WACC. $7.26B of PV + $18.76B discounted terminal = a $26.01B enterprise; less $5.28B net debt over 125.5M shares = $165. Grid at 8/9/10%: bear $120/$101/$86, base $200/$165/$139, bull $255/$209/$175. A 25/45/30 weighting gives $162. SEVEN of nine cells sit ABOVE the price. - REVERSE DCF: $130.60 x 125.5M = $16.39B equity, +$5.28B net debt = a $21.67B enterprise. Against ~$1.72B of 2026E FCF that is 12.6x and a 10.5% FCF yield - at a 9% WACC it implies FCF compounding at just 1.0% a year FOREVER, below inflation. The stock is 10.6x the midpoint of Leidos' OWN raised FY26 EPS guidance, ~9.1x EV/EBITDA, net debt 2.2x EBITDA, beta 0.55. - THE BEAT IS AGAINST A CUT BAR AND THE GROWTH IS THE SHARE COUNT: $3.26 vs $2.91 is a 12.0% beat, but Leidos earned $3.21 a year ago - consensus modelled a 9% DECLINE, so real growth was 1.6%. Non-GAAP net income $411M vs $417M, DOWN 1.4%; diluted shares 126M vs 130M, and at a flat count EPS is $3.16, a decline. GAAP EPS $2.81 DOWN 7%; operating income $514M vs $571M, DOWN 10%. Adjusted EBITDA margin 13.8% from 15.2%. Buybacks were only $72M vs $537M in H1 last year, so that tailwind is fading. - THE HEALTH CLIFF: segment operating income was I&D $142M, Health $254M, Homeland $92M, Defense $84M. Health is 44% of that on 24% of revenue at a 23.4% margin, vs 8.8-9.5% elsewhere - so to replace its $254M a quarter at Defense margins you need ~$2.9B of QUARTERLY revenue, 3x Health's entire $1,086M base. Health fell 8% as a FOURTH vendor phased onto the VBA medical exam contract, and backlog is $6.6B vs $8.0B, DOWN 18%. Entrust cost $2.34B in March; debt went $4.65B to $6.03B. - BOOKINGS - THE PART NOBODY READ: $4.9B booked, book-to-bill 1.1, backlog $48.7B, FUNDED backlog UP 44% to $10.2B, Defense backlog +30%. Street: 27 analysts, 16 buy / 11 hold, target $165.88 - we got $165 independently, so we ALIGN. Source: 8-K EX-99.1 accession 0001336920-26-000243. What to watch: Confirms it: more Homeland-style margin expansion and the $10.2B of funded backlog converting. Breaks it: a Health decline steeper than the fourth-vendor effect, losing the VBA recompete, or the DHA health-record decision going against Leidos. Hard rule: adjusted EBITDA margin below 13% and we cut to HOLD. Add aggressively under $115. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.