Leidos Holdings Inc (NYSE:LDOS) Passes the "Caviar Cruise" Quality Investing Screen

For investors aiming to assemble a portfolio of durable, high-achieving companies for the long term, the principles of quality investing offer a useful framework. This method centers on finding businesses with lasting competitive strengths, high profitability, sound financial condition, and skilled leadership—companies you can securely hold for many years. One organized way to find these stocks is the "Caviar Cruise" screen, a numerical filter based on quality investing ideas. It highlights consistent revenue and profit increase, high returns on invested capital, good free cash flow production, and an acceptable amount of debt. A present example from this screen is Leidos Holdings Inc (NYSE:LDOS).

Examining the Caviar Cruise Standards

The Caviar Cruise screen uses a number of strict filters to search for quality. Knowing why these measures are important gives background for assessing any company.

• Profitability and Efficiency: The screen requires a Return on Invested Capital (leaving out cash, goodwill, and intangibles) over 15%. This is a key gauge of how well a company uses its capital to produce profits. A high ROICexgc points to a strong competitive position and able management. For Leidos, this number is a notable 47.7%, well above the minimum and pointing to very good capital use.
• Growth Path: Quality companies should show steady expansion. The screen searches for a 5-year CAGR in EBIT (earnings before interest and taxes) over 5%, and also that this EBIT increase is faster than revenue increase. This shows better operational effectiveness and pricing ability. Leidos states an EBIT increase (5Y CAGR) of 15.1%, easily meeting the need, although its revenue increase over the same time is a lower 3.4%.
• Financial Stability: Two main filters confirm financial soundness. First, the Debt-to-Free Cash Flow ratio must be under 5, indicating the company could pay off all debt with its cash flow in a sensible period. Leidos's ratio of 3.36 shows a sound, acceptable debt level. Second, a 5-year average Profit Quality (Free Cash Flow/Net Income) over 75% is needed to make sure accounting profits become real, spendable cash. Leidos does very well here with a notable average of 202.6%, showing it produces much more cash than its stated net income—a sign of financial strength.

How Leidos Compares: Fundamental Review Summary

A look at Leidos's wider fundamental situation supports the idea from the screen. The company has an overall fundamental rating of 6 out of 10, doing better than many others in the Professional Services field.

• Profitability is a Definite Positive: Leidos scores well here (7 out of 10), with notable measures including a Return on Equity of 28.62% and a Profit Margin of 8.11%, both beating most industry rivals. Both operating and profit margins have gotten better in recent years.
• Valuation Seems Fair: The valuation score of 6 implies the stock is not expensive. With a P/E ratio of 15.62 and a forward P/E of 14.46, Leidos is priced lower than most of its industry peers and the wider S&P 500, possibly giving a buffer for investors.
• Financial Condition is Firm: The health score of 6 shows a mostly steady balance sheet. The Altman-Z score shows no bankruptcy danger, and the Debt-to-FCF ratio, as noted by the screen, is good. A middling debt-to-equity ratio of 0.94 is seen as a neutral point.
• Growth Shows a Varied View: This is the section with a lower score (4 out of 10). While past EPS and revenue increase have been good, analyst forecasts for future increase have become less strong. This highlights the value of the Caviar Cruise screen's concentration on confirmed past results and high returns, since future estimates can be unsure.

For a complete look at these ratings, you can see the full fundamental analysis report for LDOS.

Is Leidos a Quality Investment Possibility?

Screening is just the initial stage. The Caviar Cruise method finds companies with measurable high standards, and Leidos meets these checks very well, especially on the central quality points of high ROIC, firm cash conversion, and careful debt handling. Its position as a main supplier of technology services and answers in defense, intelligence, civil, and health markets implies business models with repeat revenue and high switching expenses, matching the non-numerical points of a quality investor.

Still, the less strong future increase expectations noted in the fundamental report need consideration. Quality investing is a long-range plan, and investors should balance the company's shown skill to produce high returns on capital against its increase path in the future. The fair valuation gives some balance for this doubt.

Locating Other Quality Possibilities

Leidos shows the kind of company a quality-centered screen can find. Investors wanting to look at other stocks that satisfy the strict Caviar Cruise standards can run the screen themselves to view the complete list of findings.

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Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any security. You should do your own study and talk with a qualified financial advisor before making any investment choices.