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Booz Allen (BAH) Up 3.4% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Booz Allen Hamilton (BAH). Shares have added about 3.4% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Booz Allen due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Booz Allen Tops Q4 Earnings Estimates

Booz Allen Hamilton reported strong fourth-quarter fiscal 2019 results, beating the Zacks Consensus Estimate on both earnings and revenues.

Adjusted EPS of 64 cents beat the consensus mark by 2 cents and improved on a year-over-year basis. The bottom line benefited from top-line growth, strong contract level performance and operational management. Total revenues of $1.8 billion surpassed the Zacks Consensus Estimate by roughly $73 million and increased year over year. The top line benefited from continued boost in client demand and increase in headcount.

Revenues excluding billable expenses were $1.2 billion, up 8.1% on a year-over-year basis. Billable expenses accounted for 30.3% of revenues. Booz Allen earns the maximum amount of profit from revenues, excluding billable expenses.

Total backlog increased 20.6% from the prior-year quarter to $19.3 billion. While funded backlog of $3.4 billion improved 28%, unfunded backlog was down 11.4% to $3.7 billion. Priced options went up 33% to $12.2 billion. Book-to-bill ratio was 0.36, down 40% year over year.

Headcount of 26,069 increased 5.8% year over year. Strong hiring and retention during the quarter enabled the company to surpass its headcount growth target of 5% for the fiscal year.

Booz Allen updated its three-year adjusted EPS goal. For the period from fiscal 2018 through fiscal 2021, the company now targets adjusted EPS growth of 66% compared with the previous target of 50%. It expects dividend yield of approximately 2%, supported by 6 annual revenue growth, low 10% range adjusted EBITDA margin and $1.4 billion in capital deployment.

Operating Results

Adjusted EBITDA of $153.3 million increased 3.4% year over year. Adjusted EBITDA margin on revenues declined to 8.6% from 9.1% in the year-ago quarter. Adjusted EBITDA margin on revenues, excluding billable expenses declined to 12.4% from 12.9% in the year-ago quarter.

Adjusted operating income was $135.1 million, up 2.6% year over year. Adjusted operating income margin on revenues was 7.6% compared with 8.1% in the year-ago quarter. Adjusted operating income margin on revenues, excluding billable expenses was 10.9% compared with 11.5% in the year-ago quarter.

Balance Sheet & Cash Flow

Booz Allen exited the fiscal fourth quarter with cash and cash equivalents of $284 million compared with $211.9 million at the end of the prior quarter. Long-term debt (net of current portion) was $1.7 billion, roughly flat with the previous quarter figure. The company generated $216.4 million of net cash from operating activities. Capital expenditure was $36.6 million and free cash flow was $179.8 million.

The company declared quarterly dividend of 23 cents per share, payable on Jun 28, 2019, to stockholders of record on Jun 14, 2019. It paid dividends worth $32.4 million and repurchased shares worth $71.4 million in the reported quarter.

Fiscal 2020 Outlook

Management expects adjusted EPS to range between $2.90 and $3.05. The company expects revenue growth of 6-9%. Adjusted EBITDA Margin on revenues is anticipated in the low 10% range. The company targets another 5% headcount growth for the fiscal year as labor market stays tight.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

At this time, Booz Allen has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Booz Allen has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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