Defense contractor Leidos (NYSE: LDOS) reported Q1 CY2026 results topping the market’s revenue expectations, with sales up 3.7% year on year to $4.4 billion. The company expects the full year’s revenue to be around $18.2 billion, close to analysts’ estimates. Its non-GAAP profit of $3.13 per share was 7.6% above analysts’ consensus estimates.

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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

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Leidos’s sales grew at a mediocre 6.4% compounded annual growth rate over the last five years. This wasn’t a great result compared to the rest of the industrials sector, but there are still things to like about Leidos.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Leidos’s recent performance shows its demand has slowed as its annualized revenue growth of 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 better understand 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 $48.37 billion in the latest quarter and averaged 17.6% 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 reported modest year-on-year revenue growth of 3.7% but beat Wall Street’s estimates by 2.8%.

Looking ahead, sell-side analysts expect revenue to grow 6.4% over the next 12 months, similar to its two-year rate. Although this projection implies its newer products and services will catalyze better top-line performance, it is still below the sector average. At least the company is tracking well in other measures of financial health.

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Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

Leidos has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 8.9%, higher than the broader industrials sector.

Looking at the trend in its profitability, Leidos’s operating margin rose by 4 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, Leidos generated an operating margin profit margin of 11.5%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Earnings Per Share

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Leidos’s EPS grew at 13.7% compounded annual growth rate over the last five years, higher than its 6.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Leidos’s earnings to better understand the drivers of its performance. As we mentioned earlier, Leidos’s operating margin was flat this quarter but expanded by 4 percentage points over the last five years. On top of that, its share count shrank by 11.1%. 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 22.4% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q1, Leidos reported adjusted EPS of $3.13, up from $2.97 in the same quarter last year. This print beat analysts’ estimates by 7.6%. Over the next 12 months, Wall Street expects Leidos’s full-year EPS of $12.15 to grow 3%.

Key Takeaways from Leidos’s Q1 Results

We enjoyed seeing Leidos beat analysts’ revenue expectations this quarter. We were also glad its EBITDA outperformed Wall Street’s estimates. Overall, we think this was still a solid quarter with some key areas of upside. The stock traded up 1.3% to $150.73 immediately after reporting.

Indeed, Leidos had a rock-solid quarterly earnings result, but is this stock a good investment here? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here (it’s free).