Consulting company Booz Allen Hamilton (BAH, Financial) recently released mixed results for the second quarter. The company posted a decline in both the top and bottom lines. The results didn’t surprise Booz as it was anticipating weakness. But the results met the Street’s estimates. The inline results led the stock higher on the exchange as investors received the results positively. Let us take a look at the underlying business of Booz Allen and its prospects.
A closer look at the performance
In the recently reported quarter, Booz Allen’s quarterly revenue declined to $1.3 billion from $1.37 billion as compared to the same quarter a year ago. The top line numbers were marginally lower than but it came in line with the Street’s estimates. On the earnings part, its earnings declined to $0.44 per share as compared to $0.47 per share which it posted in the same quarter last year. But Booz managed to top the analysts’ estimates of $0.42 per share.
Booz Allen posted weak results. The results were not so impressive, but the company thinks that the results improved. Booz is confident and thinks that it is well on track for future margin improvement. To support its margin improvement efforts, it is making significant investment in innovative areas such as predictive intelligence, engineering, advanced analytics, etc. However, on a broader outlook the weak results by Booz didn’t impact to its image much as the company was already expecting such as weakness to come and was on a defensive mode to deal with this. The macro economic challenges were dominant even as the government also lowered its spending.
Focusing on the future
The company is focusing on the three key sectors in which its clients operate namely financial services, healthcare and energy. The company is now trying to attract clients from other sectors as well. It is using its cyber expertise to draw clients from sectors such as manufacturing and retail. This is not enough for Booz; the company also has a good client base of blue-chip companies as well. This shows that Booz is running well and with a good client base it can make better contributions to the top line in future.
As the company is making aggressive investments, it seems in position to accelerate its growth momentum. Besides the growth strategy, Booz Allen is also focusing on serving its clients better and to facilitate this it has expansion plans as well. Booz is planning to carry out this through a combination of domain understanding, market leading consulting talent and broader technical capabilities. In addition to the investment plans, Booz will be focusing on differentiated platforms such as engineering software development etc.
It is also working closely with the pharmaceutical company as well. The company is benefiting from Booz. Booz’s Cloud analytic architecture is a great help to the companies as it is making their function easy and helping them to deal with such problems. Moreover, Booz is also making significant acquisitions. It has recently acquired Epidemico which is an informatics company providing insights continuous monitoring and consumer engagement across many important aspects of population health, including disease outbreaks, drug safety and supply chain vulnerabilities. And the management is confident that in the long runs this new acquisition will play a vital role in its broad next gen analytic strategy.
Conclusion
Moving on to fundamentals now, the stock looks reasonable with trailing P/E of 17.62 and is showing good earnings growth with forward P/E of 15.96. Also during next five year the company’s earnings are expected to grow by a CAGR of 10.00% which however is lower than the industry average of 18.23% but the efforts that Booz is showing makes its long term prospects strong. Also, the soaring shares of the stock will also help it to gain market share in future so with all aspects in mind, Booz Allen Hamilton is a good pick as of now.
