Defense contractor Leidos (NYSE: LDOS) fell short of the market’s revenue expectations in Q4 CY2025, with sales falling 3.6% year on year to $4.21 billion. The company’s full-year revenue guidance of $17.7 billion at the midpoint came in 1.1% below analysts’ estimates. Its non-GAAP profit of $2.76 per share was 5.9% above analysts’ consensus estimates.

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"Our performance this quarter and throughout the year underscores the incredible resilience of our team and the power of our strategy in action," said Leidos Chief Executive Officer Tom Bell.

Company Overview

Formed through the split of IT services company SAIC, Leidos (NYSE: LDOS) offers technology and engineering solutions such as military training systems for the defense, civil, and health markets.

Revenue Growth

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Leidos’s 6.9% annualized revenue growth over the last five years was mediocre. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about Leidos.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Leidos’s recent performance shows its demand has slowed as its annualized revenue growth of 5.5% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs.

We can dig further into the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Leidos’s backlog reached $49 billion in the latest quarter and averaged 20.2% year-on-year growth over the last two years. Because this number is better than its revenue growth, we can see the company accumulated more orders than it could fulfill and deferred revenue to the future. This could imply elevated demand for Leidos’s products and services but raises concerns about capacity constraints.

This quarter, Leidos missed Wall Street’s estimates and reported a rather uninspiring 3.6% year-on-year revenue decline, generating $4.21 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 4.4% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and indicates its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.

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Operating Margin

Leidos has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 8.8%, higher than the broader industrials sector.

Analyzing the trend in its profitability, Leidos’s operating margin rose by 3.9 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q4, Leidos generated an operating margin profit margin of 11.2%, up 1.6 percentage points year on year. This increase was a welcome development, especially since its revenue fell, showing it was more efficient because it scaled down its expenses.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Leidos’s EPS grew at a spectacular 15.5% compounded annual growth rate over the last five years, higher than its 6.9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Leidos’s earnings can give us a better understanding of its performance. As we mentioned earlier, Leidos’s operating margin expanded by 3.9 percentage points over the last five years. On top of that, its share count shrank by 10.4%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Leidos, its two-year annual EPS growth of 28.2% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q4, Leidos reported adjusted EPS of $2.76, up from $2.37 in the same quarter last year. This print beat analysts’ estimates by 5.9%. Over the next 12 months, Wall Street expects Leidos’s full-year EPS of $11.99 to grow 1.6%.

Key Takeaways from Leidos’s Q4 Results

It was encouraging to see Leidos beat analysts’ EBITDA expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its revenue missed and its full-year revenue guidance fell slightly short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 2.4% to $172.14 immediately following the results.

The latest quarter from Leidos’s wasn’t that good. One earnings report doesn’t define a company’s quality, though, so let’s explore whether the stock is a buy at the current price. We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here (it’s free).