Investment Thesis

would occur if there are material adverse developments in government defense spending or major competitive disruptions.

Competitive Moat

Leidos possesses a strong competitive moat characterized by intangible assets, particularly regulatory approvals and a trusted brand in security and health sectors. Its long-standing relationships with government agencies and defense contractors create significant switching costs for customers, enhancing customer retention. Over the next 5-10 years, this moat is expected to remain durable, although potential threats include increased competition from emerging technology firms and budget pressures in government spending.

Growth Engine

Future revenue growth for Leidos is projected to come from its Defense Solutions and Health segments, both poised to benefit from expanding total addressable markets (TAM). The U.S. defense budget is expected to grow, fueled by geopolitical tensions and national security concerns, while the digital health sector is rapidly evolving, offering opportunities for innovative IT solutions. The company is likely to pursue organic growth through enhanced service offerings and strategic acquisitions, maintaining or increasing its market share in these sectors.