Leidos Holdings' (LDOS) diversified portfolio remains underappreciated, with strength in its Homeland and Defense businesses, while capital allocation could be a positive catalyst for the stock, RBC Capital Markets said.

The brokerage said in a Tuesday note that the size of the health segment, which faces tough 2027 comparisons, justifies investor focus. However, as growth shifts to the Defense and Homeland businesses, it believes sentiment toward the stock should improve.

Leidos reported Q2 adjusted earnings of $3.26 per share ahead of the consensus estimate. Revenue rose 7% year over year, primarily driven by strength in the Homeland segment.

Leidos' strong balance sheet and increased share repurchases could support the stock. Management is favoring internal investments and returning capital to shareholders over acquisitions, which it views as relatively expensive, according to the note

RBC maintained its outperform rating on the stock and cut its price target to $170 from $180.

Shares of Leidos were down 1.7% in Wednesday afternoon trading.

Price: 128.33, Change: -2.27, Percent Change: -1.74