Why Leidos Stock Plummeted This Week
Key Points
Bank of America downgraded and reduced its price target on Leidos stock.
Shares of Leidos are now sitting in the bargain bin.
After trading flat last week, Leidos (NYSE: LDOS) moved notably lower this week. With a firm downwardly revising its price target on the software stock, investors felt compelled to click the sell button.
According to data provided by S&P Global Market Intelligence, shares of Leidos fell 11% from the end of trading last Friday through the close of today's market session.
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This company's healthcare business isn't as healthy as previously thought
Downgrading it to neutral from buy, Bank of America cut the price target on Leidos stock to $125 from $200 on Wednesday. According to Thefly.com, Bank of America based its decision to lower expectations on Leidos stock on the belief that pressure is building on its "once blooming" healthcare portfolio.
While Bank of America recognizes that the company's managed healthcare business has been a strong suit, the firm believes the Defense Health Agency, a combat support agency of the U.S. Department of Defense that integrates healthcare services for several military branches, is now focused on working directly with suppliers in the Defense Healthcare Management System Modernization program. As a result, Leidos's healthcare portfolio will now see increased pressure.
Based on Leidos shares closing at $113.58 on Tuesday, the Bank of America price target implies upside of 10%.
Is Leidos stock a buying opportunity after its recent drop?
Highly profitable and debt-free, Leidos is in impressive financial health. While Bank of America's concerns are notable, the market's reaction this week seems excessive. With shares of Leidos trading at 10 times trailing earnings, a discount to their five-year average P/E of 20.6, now seems like a great time to consider a position in the tech stock.
Bank of America is an advertising partner of Motley Fool Money. Scott Levine 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.