Booz Allen Hamilton (NYSE:BAH) bills itself as a leading management and technology consulting service provider to the U.S. government. The government accounts for the vast majority of revenue and it wins more than half of the new contracts it bids on. The company went public in late 2010 at $17 per share and trades only slightly above its IPO price. Below is a further look at its business and an overview of its recent financial results.

TUTORIAL: Top Stock-Picking Strategies

Full-Year Review
Sales advanced 9.1% to $5.6 billion as its defense, intelligence and civil market segments all posted positive growth. Its backlog grew even stronger, rising 21.1% to $10.9 billion to provide a good deal of visibility on the sales pipeline over the next couple of years. Management cited cyber and health as its fastest growing market segments.

Reported operating income jumped 60% to $319.4 million as cost of revenue lagged top-line growth, as did SG&A expense growth. A drop in interest expense helped contribute to a more than tripling of net income to $84.7 million, or $0.66 per diluted share. Operating cash flow was quite strong, coming in at $296.3 million while free cash flow was $270.5 million, or approximately $1.62 per diluted share.

Outlook
Booz Allen currently projects mid-single-digit sales growth during the first half of the new year and slightly stronger growth in the second half of the year as government contract awards and funding tend to increase in September, which is the end of the government fiscal year. It expects earnings between $1.40 and $1.50 per diluted share and a slightly higher share count of 143 million shares.

Bottom Line
At the current share price, Booz Allen trades at a forward earnings multiple and trailing free cash flow multiple of about 12. This is pretty reasonable for a market leader that has a high sales backlog and a customer that is certain to pay its bills given its ability to literally mint money. Concerns do abound about the government's ability to spend more than it earns, but many of the entities Booz Allen serves count as mission critical and are unlikely to see significant spending cutbacks.

Competition is intense in the industry, with large defense firms including Lockheed Martin (NYSE:LMT) and Raytheon (NYSE:RTN) considered key rivals, as are other general service providers such as CACI International Inc. (Nasdaq:CACI) and Unisys Corporation (NYSE:UIS). And while sales are likely to be stable, growth could be an issue given spending pressures will remain a reality for many years to come and defense spending cutbacks are likely to be severe. Finally, debt levels are pretty high, which recently weighed in at nearly 52% of total invested capital that stems from a buyout from private equity firm Carlyle back in 2008. Overall, though, Booz Allen remains a solid watch-list candidate to see if growth trends improve now that it is a public company. One option would be to use its stock as a currency to buy out other rivals. (For related reading, also take a look at The Defense Gravy Train Has Been Derailed.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  2. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  3. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  4. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  5. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  6. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  7. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  8. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  9. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
  10. Investing News

    Alphabet Earnings Beat Expectations (GOOGL, AAPL)

    Alphabet's earnings crush analysts' expectations; now bigger than Apple?
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center