BAH Financial Analysis

Analysis Date: 2/2/2025

Business Model

Booz Allen Hamilton is an advanced technology company delivering outcomes with speed for America’s most critical defense, civil, and national security priorities. They generate revenue primarily through providing consulting, technology and engineering services to the U.S. government, as well as to commercial clients.

Revenue Sources

• Consulting services across defense, intelligence, and civil markets.
• Technology solutions including AI, cyber, space systems, and digital battlespace technologies.
• Engineering services supporting critical government missions.

Income Statement Analysis

• Revenue increased by 13.5% year-over-year, indicating strong demand for services and solutions. (Pro)
• Operating income increased by 17.7%, outpacing revenue growth, showing improved operational efficiency. (Pro)
• Net income increased significantly by 28.4%, reflecting strong profitability growth. (Pro)
• Billable expenses increased by 17.3%, higher than revenue growth, which could indicate a shift in project mix or increased subcontractor usage. (Neutral to Con - needs further investigation if trend continues)
• Other income, net decreased by 56.8%, negatively impacting income before taxes, though overall impact is minor compared to operating income growth. (Con - minor impact)

Balance Sheet Analysis

• Total assets increased by 3.9%, driven by an increase in accounts receivable and deferred tax assets. (Pro - growth in business, but increased receivables need monitoring)
• Cash and cash equivalents decreased by 18.2%, potentially due to share repurchases and dividend payments, but remains healthy. (Neutral - capital deployment)
• Accounts receivable increased by 8.6%, which could be a sign of slower collections or increased sales. Needs monitoring in conjunction with revenue trends. (Neutral - needs monitoring)
• Accrued compensation and benefits increased significantly by 39.7%, likely due to headcount growth and increased employee costs. (Pro - reflects business growth, but impacts profitability)
• Total stockholders' equity increased by 15.6%, driven by retained earnings growth, demonstrating value creation. (Pro)
• Treasury stock increased significantly by 20.8% indicating aggressive share repurchase program. (Pro - shareholder value focus)

Capital Allocation

Booz Allen Hamilton demonstrates a balanced capital allocation strategy: Dividends: Increased quarterly dividend by 7.8% to $0.55 per share, showing commitment to return value to shareholders. Share Repurchases: Aggressively repurchasing shares, with a $148.8 million repurchase in Q3 FY25 and an increase in share repurchase authorization by $500 million to approximately $1 billion. This indicates confidence in the company's value and future prospects. Business Reinvestment: Investing in business acquisitions (Payments for business acquisitions increased significantly) and strategic investments through Corporate Venture Capital Fund ($9.3 million in Q3 FY25). This shows a focus on growth and expanding capabilities.

Management Commentary

Excellent financial results for Q3 FY25, including double digit growth at both top and bottom lines.

Booz Allen continues to achieve strategic and operational momentum.

Tightening towards the upper end of guidance ranges for fiscal year 2025.

Expect industry will see a short term slowdown of funding and award activity as new administration establishes agenda.

Agencies taking some time to adjust to the new administration priorities and government workforce adjusting to the new environment leading to potential disruption.

Overall Sentiment: Positive to cautiously optimistic. Management expresses confidence in the company's performance and strategic positioning, highlighting strong Q3 results and increased guidance. They acknowledge potential short-term slowdown due to presidential transition but emphasize long-term opportunities and alignment of their strategy with the new administration's priorities.

Recommendation

Rating: Buy

Reason for Rating: Based on strong Q3 FY25 performance, increased full-year guidance, robust backlog, and strategic alignment with the new administration's focus on technology and efficiency, a 'Buy' recommendation is warranted.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/2/2025, 8:49:52 PM