Leidos Holdings Inc (LDOS) — This IT consulting company delivers science and technology solutions to security, engineering and health markets. It competes against some of the most powerful firms for government contracts in the intelligence community and from the Department of Defense.
Despite its record of steady cash flow, revenue is expected to fall 14% this year, following a 48% decline in 2014, due to sequestration. Federal spending cuts and slow contract ramp-ups and cancellations have been a recurring problem. Restructurings, including the closing of facilities, have also contributed to a spotty earnings record.
In early August, Capital IQ downgraded LDOS stock to a “sell” from a “hold,” maintaining its 12-month price target of $40, which is 5% below the current price. Its analysts consider the stock’s valuations “excessive” given the legacy issues and limited growth potential.
Despite obvious fundamental shortcomings, LDOS stock has held in a sideways consolidation since November. However, a recent death cross at about $42, what appears to be a rounding top formation (bearish), along with a MACD indicator that is in a sell zone and its inability to consistently hold above its 200-day and 50-day moving average, make this a short-sale candidate.
Sell LDOS stock short at $42 or higher with a trading target of $35 for a gain of 17%. A stop-loss order should be placed at $45 to protect against the potential for unlimited losses.
Shorting is a speculative technique that is not suitable for all investors. Note that Leidos Holdings is estimated to go ex-dividend in October. Short sellers will be subject to remitting that dividend of 32 cents per share to the current holder if they are short then.
