Leidos Holdings Inc. (LDOS) has been firing on all cylinders lately—strong bookings, solid organic growth, and healthy margins. But sometimes doing everything right isn't enough, and Stifel thinks that's where the engineering company finds itself heading into 2026.

Analyst Jonathan Siegmann downgraded Leidos from Buy to Hold, keeping his price target at $220. The issue isn't current performance—it's what comes next.

The concern centers on the Department of Veterans Affairs Compensation and Pension medical exam contract, which Siegmann says will likely see growth moderate next year. These exams determine whether a veteran's disability is service-connected and establish disability ratings for benefits.

Here's why that matters: The C&P exam program generates over $5 billion annually and handles 93% of all VA evaluations. It contributes more than 30% of Leidos Holdings' consolidated earnings. That's a lot of eggs in one basket.

"While earnings from this key contract might not deteriorate as much as some may worry, it will likely take time for LDOS to prove this sustainability," Siegmann wrote.

Shares of Leidos Holdings closed down 0.71% at $195.22 on Thursday.