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Why Is Booz Allen (BAH) Down 9.5% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Booz Allen Hamilton (BAH). Shares have lost about 9.5% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Booz Allen due for a breakout? 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 Beats on Earnings and Revenues in Q3

Booz Allen Hamilton Holding Corporation (BAH) reported strong third-quarter fiscal 2020 results, beating the Zacks Consensus Estimate on both earnings and revenues.

Adjusted EPS of 80 cents beat the consensus mark by 5.3% and improved 11.1% on a year-over-year basis. The bottom line benefited from top-line growth, strong contract level performance, efficient management of business and an ongoing shift toward higher-margin technically focused work.

Shares of the company have gained 48.3% over the past year, significantly outperforming the 31.1% growth of the industry it belongs to.

Revenues, Backlog & Headcount Increase Y/Y

Total revenues of $1.85 billion surpassed the Zacks Consensus Estimate by 1.6% and increased 11.2% year over year. Revenues, excluding billable expenses were $1.25 billion, up 8.3% on a year-over-year basis. Billable expenses accounted for 32% of revenues.

Total backlog increased 7.3% from the prior-year quarter to $22 billion. Funded backlog of $3.52 billion decreased slightly year over year. Unfunded backlog was up 17.9% to $5.31 billion. Priced options went up 5.8% to $13.13 billion. Book-to-bill ratio was 0.48, up 6.7% year over year. Headcount of 27,176 increased 5.3% year over year.

Operating Performance Improves

Adjusted EBITDA of $190.8 million increased 6.2% year over year. Adjusted EBITDA margin on revenues decreased to 10.3% from 10.8% in the year-ago quarter. Adjusted EBITDA margin on revenues, excluding billable expenses, decreased to 15.3% from 15.6% in the year-ago quarter.

Adjusted operating income was $170.1 million, up 6.2% year over year. Adjusted operating income margin on revenues was 9.2%, down from the year-ago quarter’s figure of 9.7%. Adjusted operating income margin on revenues, excluding billable expenses, was 13.6% compared with 14% in the year-ago quarter.

Balance Sheet & Cash Flow

Booz Allen Hamilton exited the fiscal third quarter with cash and cash equivalents of $696.8 million compared with $781.5 million at the end of the prior quarter. Long-term debt (net of current portion) was $2 billion, roughly flat with the previous quarter. The company generated $99.8 million of net cash from operating activities. Capital expenditure was $30.7 million and free cash flow was $69 million.

The company paid out dividend worth $38.1 million and repurchased shares worth $22.5 million in the reported quarter.

Booz Allen Hamilton Holding Corporation (BAH) reported strong third-quarter fiscal 2020 results, beating the Zacks Consensus Estimate on both earnings and revenues.

 

Adjusted EPS of 80 cents beat the consensus mark by 5.3% and improved 11.1% on a year-over-year basis. The bottom line benefited from top-line growth, strong contract level performance, efficient management of business and an ongoing shift toward higher-margin technically focused work.

 

Revenues, Backlog & Headcount Increase Y/Y

 

Total revenues of $1.85 billion surpassed the Zacks Consensus Estimate by 1.6% and increased 11.2% year over year. Revenues, excluding billable expenses were $1.25 billion, up 8.3% on a year-over-year basis. Billable expenses accounted for 32% of revenues.

 

Total backlog increased 7.3% from the prior-year quarter to $22 billion. Funded backlog of $3.52 billion decreased slightly year over year. Unfunded backlog was up 17.9% to $5.31 billion. Priced options went up 5.8% to $13.13 billion. Book-to-bill ratio was 0.48, up 6.7% year over year. Headcount of 27,176 increased 5.3% year over year.

 

Operating Performance Improves

 

Adjusted EBITDA of $190.8 million increased 6.2% year over year. Adjusted EBITDA margin on revenues decreased to 10.3% from 10.8% in the year-ago quarter. Adjusted EBITDA margin on revenues, excluding billable expenses, decreased to 15.3% from 15.6% in the year-ago quarter.

Adjusted operating income was $170.1 million, up 6.2% year over year. Adjusted operating income margin on revenues was 9.2%, down from the year-ago quarter’s figure of 9.7%. Adjusted operating income margin on revenues, excluding billable expenses, was 13.6% compared with 14% in the year-ago quarter.

 

Balance Sheet & Cash Flow

 

Booz Allen Hamilton exited the fiscal third quarter with cash and cash equivalents of $696.8 million compared with $781.5 million at the end of the prior quarter. Long-term debt (net of current portion) was $2 billion, roughly flat with the previous quarter. The company generated $99.8 million of net cash from operating activities. Capital expenditure was $30.7 million and free cash flow was $69 million.

 

The company paid out dividend worth $38.1 million and repurchased shares worth $22.5 million in the reported quarter.

 

Fiscal 2020 Outlook

 

The company raised its revenue growth projection to 10-11.5% from 9-11% expected earlier. The adjusted EPS guidance has been raised to $3.05-$3.15 from $3-$3.1 guided earlier. The midpoint ($3.1) of the revised guided range is below the Zacks Consensus Estimate of $3.14.

 

Adjusted EBITDA margin on revenues is continued to be anticipated in the low 10% range. Operating cash flow is now expected in the range of $500-$550 million, compared with the previous expectation of $450-$500 million.

The company raised its revenue growth projection to 10-11.5% from 9-11% expected earlier. The adjusted EPS guidance has been raised to $3.05-$3.15 from $3-$3.1 guided earlier. The midpoint ($3.1) of the revised guided range is below the Zacks Consensus Estimate of $3.14.

 

Adjusted EBITDA margin on revenues is continued to be anticipated in the low 10% range. Operating cash flow is now expected in the range of $500-$550 million, compared with the previous expectation of $450-$500 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

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. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 #3 (Hold). We expect an in-line return from the stock in the next few months.



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