Booz Allen Shares Slip on PRISM Leak

Zacks

Virginia-based management and technology consulting services provider, Booz Allen Hamilton Holding Corp.’s (BAH) shares slumped 2.6% after news one of its employees revealed classified information related to a National Security Agency (:NSA) electronic surveillance program (called PRISM).

The 29-year-old Edward Snowden responsible for the leak was once associated with the U.S. Central Intelligence Agency (CIA). He broke the story to the U.K-based daily The Guardian and admitted that some secret information regarding the NSA’s PRISM program had been given out as a news byte to a section of the media. (Snowden has previously spent four years working with several contractors of the NSA.)

The NSA, one of the secret agencies of the U.S. Department of Defense, is responsible for the collection and analysis of foreign communications and foreign signals intelligence, as well as protecting the U.S. government’s communications and information systems.

Booz Allen, which has been Snowden’s employer for just about three months, may be significantly impacted by the outcome of the probe. Being one of the biggest contenders for government contracts (roughly 99.0% of its revenues), it could be hard for Booz Allen to escape responsibility for inadequate safety measures.

Booz Allen’s close association with the federal agencies is mainly due to its mission critical services that are helpful for combating global terrorism, improving cyber capabilities, transforming the healthcare system, improving efficiency and managing change within the government, and protecting the environment.

Booz Allen reported a solid fourth quarter 2013 with earnings of 39 cents topping the Zacks Consensus Estimate by 11.4%. Though year-over-year revenue growth was negligible, Booz Allen recorded a total backlog of $11.83 billion.

We think that the Snowden issue and tight spending by federal agencies can jeopardize its position. If this issue is resolved, however, the solid backlog, deal pipeline, planned acquisitions and strategic investments in core business areas could result in a good year for the company.

Currently, Booz Allen has a Zacks Rank #2 (Buy). Some other stocks in the category that warrant a look, include Providence Service Corp. (PRSC), carrying a Zacks Rank #1 (Strong Buy), and Maximus Inc. (MMS) and Accenture plc (ACN), carrying a Zacks Rank #2 (Buy).

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