Leidos Holdings, Inc.LDOSNYSE
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DCF Valuation
DCF Valuation Summary
Strong Buy
Fair Value: $729.02 per share(market-calibrated)
+306.4%
Upside to Fair Value
Current
$179.40
Pure Model
$842.33
Fair Value
$729.02
Bull Case
$1,059.48
Bear Case
$649.96
Market Reality Check
Model Terminal Growth
3.75%
Market-Implied Growth
0.50%
Calibrated Growth
2.61%
Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $842.33.
What's Driving This Ratingfor LDOS
✓
CapEx already efficient
CapEx at 0.83% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.
↑
Margin expansion modeled
Current EBIT margin is 17.57% — below the sector mature average of 25.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $5.5B (23.05% margin).
→
Moderate revenue growth
Analyst consensus projects 0.60% revenue growth, fading to 3.75% by Year 10. Revenue reaches $23.9B (vs $17.2B today).
🎯
Market pricing in lower growth than model
The market implies only 0.50% perpetual growth — 325bps below the model's 3.75%. This suggests the market sees headwinds or risks not in the model.
✓
Strong cash flow conversion
Year 10 FCF/EBITDA conversion of 74.94% indicates efficient cash generation. FCF reaches $4.5B by Year 10 (18.64% FCF margin).
Weighted Average Cost of Capital (WACC)
Cost of Equity (CAPM)
Risk-Free Rate (Rf)4.50%
Beta (β)0.62
Market Risk Premium4.50%
*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)
Cost of Equity (Re)7.29%
Cost of Debt
Pre-tax Cost of Debt3.34%
Tax Rate23.18%
After-tax Cost of Debt2.57%
Equity Weight (E/V)80.03%
Debt Weight (D/V)19.97%
WACC Calculation
WACC = (E/V × Re) + (D/V × Rd × (1-Tc))
WACC = (80.03% × 7.29%) + (19.97% × 2.57%)
= 6.35%
10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)
| Year | Year 1 | Year 3 | Year 5 | Year 7 | Year 10 |
|---|---|---|---|---|---|
| Revenue | $17.3B | $18.5B | $19.9B | $21.4B | $23.9B |
| EBIT | $3.0B | $3.3B | $3.8B | $4.5B | $5.5B |
| Tax | $704M | $755M | $877M | $1.1B | $1.3B |
| NOPAT | $2.3B | $2.5B | $2.9B | $3.5B | $4.2B |
| + Depreciation | $316M | $339M | $363M | $391M | $436M |
| - Capex | $144M | $154M | $165M | $178M | $199M |
| - Δ NWC | $2M | $12M | $12M | $13M | $14M |
| Free Cash Flow | $2.5B | $2.7B | $3.1B | $3.7B | $4.5B |
| Discount Factor | 0.940 | 0.831 | 0.735 | 0.650 | 0.540 |
| Present Value | $2.4B | $2.2B | $2.3B | $2.4B | $2.4B |
FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital
Terminal Value Calculation
Perpetuity Growth Method
Year 10 FCF$4.5B
Terminal Growth Rate3.75%
WACC6.35%
TV = FCF₁₀ × (1+g) / (WACC-g)
Terminal Value$177.8B
PV of Terminal Value$96.1B
Exit Multiple Method
Year 10 EBITDA$5.9B
Exit Multiple (EV/EBITDA)28.0x
TV = EBITDA₁₀ × Exit Multiple
Terminal Value$166.3B
PV of Terminal Value$89.9B
Valuation Summary
Perpetuity Growth Method
PV of Projected FCFs$23.3B
PV of Terminal Value$96.1B
Enterprise Value$119.4B
(-) Net Debt$4.7B
Equity Value$114.6B
Shares Outstanding132M
Price per Share$865.85
Exit Multiple Method
PV of Projected FCFs$23.3B
PV of Terminal Value$89.9B
Enterprise Value$113.1B
(-) Net Debt$4.7B
Equity Value$108.4B
Shares Outstanding132M
Price per Share$818.82
Pure Model Fair Value
$842.33
Average of perpetuity growth and exit multiple methods (before market calibration)
Sensitivity AnalysisPrice per Share
| WACC ↓ / Growth → | 2.75% | 3.25% | 3.75% | 4.25% | 4.75% |
|---|---|---|---|---|---|
| 4.35% | $1,093.38 | $1,047.19 | $1,003.18 | $961.24 | $921.25 |
| 5.35% | $917.64 | $1,014.22 | $1,003.18 | $961.24 | $921.25 |
| 6.35% | $738.91 | $782.27 | $842.33 | $931.04 | $921.25 |
| 7.35% | $625.13 | $648.70 | $678.84 | $718.70 | $773.91 |
| 8.35% | $543.05 | $557.37 | $574.80 | $596.49 | $624.21 |
How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.
Scenario Analysis
Bear Case
$649.96
262.3% vs current
- • -25% vs analyst consensus
- • Terminal growth: 3.3%
- • Beta: 0.78
Base Case
$842.33
369.5% vs current
- • Analyst consensus
- • Terminal growth: 3.8%
- • Beta: 0.62
Bull Case
$1,059.48
490.6% vs current
- • +25% vs analyst consensus
- • Terminal growth: 4.3%
- • Beta: 0.53
Key Assumptions & Drivers• Technology Sector
Growth Assumptions (Select Years)
Year 1 Revenue Growth0.60%
Year 3 Revenue Growth4.16%
Year 5 Revenue Growth3.75%
Year 7 Revenue Growth3.75%
Year 10 Revenue Growth3.75%
Terminal Growth Rate3.75%
Margin & Efficiency
Current EBIT Margin17.57%
Terminal EBIT Margin25.00%
Tax Rate23.18%
Historical Capex / Rev0.83%
NWC / Revenue1.66%
Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.
Institutional-Grade Methodology
Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta
Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 28x EV/EBITDA (Technology sector)
This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.