Leidos Holdings' Backlog Grows: What Does it Mean for Future Revenues?

Core Insights - For defense contractors like Leidos Holdings Inc. (LDOS), an increasing backlog count is a primary revenue growth driver, supported by a steady flow of contracts from the Pentagon and U.S. allies amid rising geopolitical tensions [1][3] - A growing backlog strengthens future order deliveries, converting into notable sales, ensuring a steady revenue stream and predictable cash flow, thus enhancing the company's financial outlook [2] Backlog and Revenue Growth - LDOS recorded a first-quarter 2025 backlog of $46.30 billion, up from $43.56 billion at the end of fourth-quarter 2024, which itself improved from $40.56 billion in third-quarter 2024 and $36.49 billion in second-quarter 2024 [3][12] - The company's revenues improved by 6.9% year-over-year in third-quarter 2024, 9.7% in fourth-quarter 2024, and 6.8% in first-quarter 2025, indicating a positive correlation with the rising backlog [3][12] - Future revenue growth is anticipated, with Zacks Consensus Estimates suggesting a year-over-year improvement of 2.7% for 2025 and 3.2% for 2026 [4] Industry Comparisons - Other defense contractors like RTX Corp. and Lockheed Martin are also experiencing solid backlog growth, with RTX reporting a backlog of $92 billion and Lockheed Martin at $173 million as of March 31, 2025 [5][6][7] - RTX's first-quarter sales improved by 5.2% to $20.31 billion, while Lockheed's sales increased by 4.5% to $17.20 billion, reflecting similar trends in revenue growth across the industry [6][7] Stock Performance and Valuation - Shares of LDOS have gained 1.5% over the past year, compared to the industry's growth of 5.2% [10] - The company's shares are currently trading at a forward 12-month Price/Earnings ratio of 13.66X, significantly lower than the industry's average of 28.48X, indicating a potential undervaluation [11]