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Booz Allen Gains From Government Focus

By    |   Tuesday, 28 February 2012 06:15 AM

Booz Allen Hamilton Holding (BAH), a longtime consultant to the U.S. government, has posted gains from its increased focus on the public sector, despite budgetary pressure on its federal clients. Booz Allen has worked almost exclusively for the U.S. government, and especially for military and intelligence agencies, since the 2008 spin-off of its commercial consulting business.

The McLean, Va., company has been expanding as a U.S. government consultant since 1940, when it began serving as an adviser to the Secretary of the Navy. Booz Allen now is a consultant on technology and management issues to most cabinet-level federal departments, including the Department of Defense, Department of Homeland Security and Department of the Treasury.

In 2008, Booz Allen spun off its commercial and international consulting businesses as a separate firm, called Booz & Company, and continued in U.S. government work under the control of private equity firm Carlyle Group. Carlyle paid $2.55 billion in connection with the spin-off to become the majority owner of Booz Allen.

Booz Allen has grown since, concentrating on U.S. government work, even though many federal agencies are under fiscal pressure to restrain their spending. Ralph W. Shrader, chairman, chief executive officer and president of Booz Allen, acknowledged in a company statement Feb. 3 that quarterly revenue rose year-over-year, "despite a challenging federal government environment."

Another vulnerability is the company's concentrated customer base. Work for defense and military agencies accounted for slightly more than half of Booz Allen's fiscal 2011 revenue, and another fifth came from consulting for agencies that conduct intelligence activities.

Most stock analysts following Booz Allen in early February had buy ratings on the stock, which soon will start paying a dividend. Booz Allen has approved a quarterly cash dividend of 9 cents per share, payable starting on Feb. 29.

But some analysts have reservations about Booz Allen. Two at Susquehanna Financial Group cite heavy dependence on military and intelligence contracts, together accounting for more than 70 percent of revenue, and the potential impact on Booz Allen's stock price if Carlyle Group were to sell its majority stake in the company.

"We maintain our negative rating and an $11 price target," the Susquehanna analysts James E. Friedman and Meghna Ladha wrote in a Feb. 3 report on Booz Allen. Among other obstacles to stock price appreciation, "the 55 percent defense and 21 percent intelligence concentration is high, and the Carlyle shares will likely eventually come to market."

Earnings rise

Booz Allen reported Feb. 3 that net income nearly tripled to $189 million in the nine months ended in December from $66 million during the same period in 2010. A major catalyst was a $77 million year-over-year decrease in interest expense in the nine-month period, to $36 million.

Revenue in the nine months ended Dec. 31 totaled $4.31 billion, up from $4.09 billion in the prior comparable period.

Booz Allen will release the financial report for its fiscal fourth quarter ending in March around June 7.

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Tuesday, 28 February 2012 06:15 AM
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