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Booz Allen (BAH) Beats Q3 Earnings Estimates, Updates View

Zacks Equity Research

Booz Allen Hamilton Holding Corporation BAH reported strong third-quarter fiscal 2019 results. Both EPS and revenues beat consensus estimates.

The stock has risen 1.9% since the release as the guidance for 2019 was encouraging. Management raised anticipated adjusted EPS range to $2.65 - $2.75 from $2.55-$2.65 guided earlier. The mid-point of the raised guidance ($1.70) is above the Zacks Consensus Estimate of $1.65 for the period.

EPS of 72 cents in the quarter beat the consensus mark by 14 cents and improved on a year-over-year basis. The bottom line benefited from strong top-line growth and lower corporate tax rate.

Total revenues of $1.66 billion surpassed the Zacks Consensus Estimate by $62 million and increased year over year. The increase was driven by continued strength in client demand, improved contract performance, increase in headcount and an extra workday in the quarter.

Booz Allen Hamilton Holding Corporation Revenue (TTM)

 

Booz Allen Hamilton Holding Corporation Revenue (TTM) | Booz Allen Hamilton Holding Corporation Quote

 

Revenues excluding billable expenses were $1.15 billion, up 12.2% on a year-over-year basis. Billable expenses accounted for 30.7% of revenues in the reported quarter. Booz Allen earns the maximum amount of profit from revenues, excluding billable expenses.

Total backlog increased 22.7% from the prior-year quarter to $20.5 billion. While funded backlog of $3.5 billion improved 22.5%, unfunded backlog grew 6.7% to $4.5 billion. Priced options went up 29.8% to $12.4 billion. Book-to-bill ratio was 0.45, down 54.5% year over year.

Headcount of 25,803 increased 4.3% year over year, reflecting the company’s continued strength in hiring. Given this strength in hiring and continuous demand for talent, Booz Allen is hopeful of reaching or surpassing its headcount growth target of 5%.

Shares of Booz Allen have gained a massive 43.1%, outperforming 26.3% growth recorded by the industry it belongs to.

 

Operating Results

Adjusted EBITDA of $179.7 million increased 23.8% year over year. Adjusted EBITDA margin rose to 10.8% from 9.9% in the year-ago quarter. The upside was driven by strong contract level performance, $11-million benefit from an amendment and associated revaluation of the company’s long-term disability plan.

Adjusted operating income was $161.9 million, up 26% year over year. Adjusted operating income margin on revenues was 9.7% compared with 8.7% in the year-ago quarter.

Total operating costs and expenses increased 11.8% year over year to $1.5 billion.

Balance Sheet & Cash Flow

Booz Allen exited the third quarter with cash and cash equivalents of $211.9 million compared with $342.6 million at the end of the prior quarter. Long-term debt (net of current portion) was $1.72 billion, flat with the previous quarter figure.

The company generated $8.6 million of net cash from operating activities in the reported quarter. Capital expenditure was $18.4 million.

The company raised quarterly dividend by 4 cents to 23 cents per share, payable on Feb 28, 2019, to stockholders of record on Feb 14, 2019. It paid dividends worth $27.1 million and repurchased shares worth $83 million in the reported quarter.

Updated Fiscal 2019 Outlook

The company now expects revenue growth of 7-8% compared with the previous expectation of 6-8%.  Adjusted EBITDA Margin on Revenues is anticipated in the range of 10-10.5%.

Zacks Rank & Other Key Picks

Booz Allen currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

A few other top-ranked stocks in the broader Business Services sector are General Finance Corporation GFN, Omnicom Group Inc OMC and Paychex, Inc PAYX, each carrying a Zacks Rank #2 (Buy).

The long-term expected EPS (three to five years) growth rate for General Finance, Omnicom and Paychex is 11%, 6.9% and 8.8%, respectively.

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