Key Points
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Leidos’ latest quarter showed improving momentum, contract wins and higher full-year guidance.
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The ENTRUST acquisition meaningfully expands Leidos’ grid modernization and power engineering footprint.
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Near-term costs may weigh on margins, but energy demand from AI data centers could become a long-term tailwind.
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Energy scarcity is quickly becoming a major concern. As demand keeps climbing, countries are struggling to find enough power capacity to keep pace with the needs of businesses, consumers, and now data centers. To address the problem, Leidos (NYSE: LDOS) just closed a $2.4 billion acquisition of grid infrastructure, a move that could make the tech company a major player in the artificial intelligence energy market.
As the business expands into energy infrastructure, the question for investors is whether Leidos’s improving growth story makes the stock worth a closer look.
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Leidos enters a new phase of growth
Back in August, Leidos reported nearly $4.6 billion in revenue, up 7% year over year. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin came in at 13.8%, while cash flow from operating activities surged 63% to $793 million. This revenue growth resulted from stronger demand for defense tech products, energy and air traffic management solutions, and intelligence mission support.
Growth was also supported by roughly $5 billion in new contract awards, which gives investors better visibility into future revenue. All of this gave management more confidence in the future, leading to an increase in full-year 2026 guidance. Leidos now expects revenue of between $18.2 billion and $18.4 billion and diluted earnings per share of $12.20 to $12.50 on a non-GAAP (adjusted) basis.
Beyond its main business segments, the company has been building out a new growth driver: energy.
The $2.4 billion acquisition behind Leidos’s energy expansion
Leidos recently completed its $2.4 billion acquisition of ENTRUST Solutions Group, significantly expanding its energy infrastructure business. The deal roughly doubles the company’s presence in the energy infrastructure market and adds more than 3,100 professionals with deep expertise in power grids and natural gas infrastructure. It also broadens Leidos’s engineering capabilities and its customer relationships across the U.S.
That puts the company in a much stronger position as a provider of power engineering and grid modernization services, helping utilities upgrade aging infrastructure, improve reliability, and meet growing electricity demand.
More importantly, the deal supports the company’s long-term growth strategy by making energy infrastructure a larger part of its NorthStar 2030 plan, which focuses on five growth areas: defense, health services, cybersecurity, energy infrastructure, and mission software.
Yes, margins face near-term pressure, but it appears temporary. Net income and earnings per share were dragged lower by costs tied to the ENTRUST acquisition, the pending Analogic joint venture, and NorthStar 2030 restructuring.
As these costs roll off, margins should improve, strengthening the investment case for Leidos.
Is Leidos worth buying after the ENTRUST deal?
Right now, 18 Wall Street analysts rate Leidos a moderate buy. One-year price targets suggest potential upside reaching 75%, and it’s easy to see why. Energy scarcity is becoming a much bigger theme as hyperscalers build out AI data centers, turning power capacity into a real constraint.
And the company’s acquisition of ENTRUST is perhaps the most significant near- to mid-term catalyst. The acquisition strengthens Leidos’s position in energy infrastructure. But beyond that, it supports the company’s NorthStar 2030 strategy, giving it greater exposure to high-growth segments across multiple industries and markets.
And with a $2.4 billion bet on the future of power infrastructure, the company could see explosive growth as hyperscalers ramp up power demand, potentially making Leidos one of the biggest under-the-radar AI plays over the next decade.
If the ENTRUST integration works out and revenue flows through to the bottom line, this stock will likely perform well, but if the integration drags on longer than expected or returns on the acquisition disappoint, Leidos could just as quickly underperform.
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Rick Orford has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Leidos. The Motley Fool has a disclosure policy.
