Leidos Holdings (NYSE: LDOS) was the best performing stock in the S&P 500 yesterday after the company smashed analyst expectations with their Q4 earnings released before the bell. The Virginia based scientific research and defense technology company saw its GAAP EPS come in a full 10% higher than the consensus while its revenue for the quarter was up over 11% year on year. With those kinds of numbers, it’s easy to see why its shares jumped more than 9% during Tuesday’s session to the rally going.
And what a rally it is. When we include Tuesday’s jump it means that in little over a year, shares have tacked on 140% in value and have been regularly printing all-time highs for fun.
Leidos’ CEO, Roger Krone, commented with the release, "we delivered strong fourth-quarter results, including record organic revenue growth, increasing margins and significant year-over-year non-GAAP earnings growth. Our growth and execution momentum accelerated throughout 2019 and has continued into 2020 with significant new program wins and the opportunity to create value from our two recently announced acquisitions. I am confident that we are growing the company with the right talent, the right capabilities and the right strategy to continue to drive value for our customers, employees, and shareholders."
Good News After Good News
In October when they released their Q3 earnings, the management was confident enough to raise forward guidance. Based on this and the run of good headlines about the company in the months since investors have every reason to believe Krone. In early December, the company was awarded a ten year, $6.5 billion US defense contract. A week later, they were announcing the acquisition of defense technology company Dynetics for close to $2 billion. In January they picked up a five year $110 million contract from the US Army. In early February, Leidos was awarded a $75 million contract with NORAD. A day later, a $7.7 billion contract from the US Navy came in.
You get the picture. There is huge fundamental growth at work here and it looks and feels like shares are struggling to price it all in fast enough. When compared to some of the other big names in the defense technology space, Leidos is the clear winner in recent years. Since February 2015, their shares have run on over 170%. The likes of Lockheed Martin (NYSE: LMT), Raytheon (NYSE: RTN) and Northrup Grumann (NYSE: NOC) are all between 100-120%. Over the past year, Leidos is up 94% while the others are up between 25-45%. Respectable for sure but still a good way behind Leidos which speaks to volumes to the company’s ability to be the preferred vendor when these ten-digit contracts are being handed out.
For investors looking to get involved in the coming days or weeks, it’s worth noting that the stock’s RSI is over 80 so starting to get pretty warm. Anything over 70 suggests a stock is starting to get overbought and is at risk of a pullback, no matter how much positive momentum there is. It will be interesting to see how this plays out. We have $126 to the topside as the fresh all-time high printed yesterday and any movement of shares above here means they’ll likely go higher in the short term. To the downside, a move below $117 would mean that shares likely want to fill in the gap up and we’ll be looking at the $111 mark for the first line of support and a decent entry point for the more cautious trader.
The company is doing everything right and its shares are playing its part. Any pullback from here should be considered a gift of a buying opportunity for this best in class industry leader.
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