Leidos: The Defence Contractor Quietly Buying the AI Power Grid
Leidos Holdings ($LDOS) is down 43% YTD and 34.7% over the past twelve months, currently trading at $101.76. During this period the company beat Q1 2026 earnings, raised FY guidance to $18-$18.4B (+$500M), and won over $4.6B+ in new contracts, including a $2.7B Army hypersonic weapons programme.
The stock fell because the Defence Health Agency signalled it plans to transition away from Leidos as lead systems integrator for MHS GENESIS, the US military's electronic health record programme.
What Leidos Does
Leidos is a science and technology company providing services and solutions for defence, intelligence, civil, and health markets. They employ 47,000 people, of whom ~53% hold US security clearances.
Leidos operates across four segments: National Security & Digital, covering intelligence systems, cybersecurity, and digital modernisation for defence and intelligence agencies. Health & Civil, covering federal health IT, medical disability examinations, and energy infrastructure. Defence Systems, covering weapons systems, air and missile defence, hypersonic programmes, maritime and aerospace. Commercial & International, covering power grid engineering and security screening systems.
The US government accounts for the vast majority of revenue; contracts range from cost-plus development work to fixed-price production programmes. The $48.4B backlog at the end of Q1 2026 represents ~2.8 years of revenue at current run rates.
Leidos does not sell products to consumers; it is embedded so deeply in US government infrastructure that replacing it as a vendor requires years of transition planning. Getting US security clearance takes between 6 months and 2 years to obtain; having a workforce of 25,000+ people holding active clearances takes decades.
The Q1 2026 Numbers
Per the Q1 2026 10-Q filed May 5th: Revenue $4.4B (+4% YoY). Operating income $508M (-4% YoY), reflecting $35M in ENTRUST acquisition and integration costs (similar to FIS and the TSYS integration). Net income $335M (-8% YoY), for the same reason. Strip the one-time costs out and non-GAAP diluted EPS was $3.13 (+5% YoY).
GAAP margins compressed ~1% YoY, again due to ENTRUST acquisition costs. Non-GAAP operating margin expanded ~1% YoY for the same reason. The underlying business is more profitable than a year ago. Adjusted EBITDA margin held at 14%.
FY 2026 guidance raised: revenue $18-$18.4B (+$500M), mid-13% adjusted EBITDA margins, non-GAAP diluted EPS $12.10-$12.50, ~$1.75B operating cash flow.
Balance sheet: total assets $15.4B, total debt $6.3B, cash $457M, backlog $48.4B including $9.7B funded. Quarterly dividend $0.43 per share, payable June 30th.
The ENTRUST Acquisition
The debt increase QoQ from $4.6B to $6.3B reflects the $2.4B all-cash acquisition of ENTRUST Solutions Group, completed March 30th 2026.