Every day, Wall Street analysts upgrade some stocks, downgrade others, and "initiate coverage" on a few more. But do these analysts even know what they're talking about? Today, we're taking one high-profile Wall Street pick and putting it under the microscope...

Consulting company Booz Allen Hamilton (NYSE:BAH) is one of the Pentagon's favorite defense contractors, racking up billions of dollars of Defense Department contracts every year. The company ran into a bit of trouble this past summer, when the Department of Justice announced a "civil and criminal investigation" into activities at a Booz Allen subsidiary accused of using hinky accounting in its "cost charging practices with the U.S. government."

That investigation cost Booz Allen Hamilton a 20% hit to its stock price back in June, when the investigation was first reported in the pages of The New York Times. Booz Allen eventually clawed its way back to where its stock price was before the scandal broke, but then an earnings report on Monday hit shares with another 4% drop.

Bad news? It sure sounds like it. But in the opinion of one analyst, Booz Allen's latest stock price drop is giving investors a second bite at the apple. Here's what you need to know.

The Pentagon

The Pentagon loves Booz Allen Hamilton, but investors don't. Is that the right call? Image source: Getty Images.

Jefferies is jonesing for Booz

This morning, analysts at Jefferies & Co. announced they are upgrading Booz Allen Hamilton stock to buy and assigning the shares a $44 price target. Jefferies' new price target sits 20% above what Booz shares costs today -- and 22% higher than Jefferies' prior price target of $36 per share.

Why does Jefferies think Booz Allen stock is worth so much? To find out, let's first take a look at what Booz had to say about earnings yesterday.

What Booz Allen said

Perhaps the most surprising thing about Booz Allen's stock price drop yesterday is that it didn't come about as the result of an earnings miss. To the contrary, reporting earnings for its fiscal Q2 2018, Booz beat analyst expectations by earning $0.47 per diluted share on $1.54 billion in revenue -- both numbers being ahead of analyst estimates. Revenue was up 10.6% over last year's Q2, with operating profits up 7.5%, net income increasing 12.9%, and earnings per share rising 14.6%. Booz Allen CEO Horacio Rozanski called these results "another quarter of strong operational performance."

And that's not all. Reaffirming its previous guidance, Booz told investors they can expect to see revenue growth between 4% and 7% for full year fiscal 2018. (Note that Booz considers now to be "fiscal 2018"). According to data from S&P Global Market Intelligence, that works out to sales of between $6 billion and $6.2 billion. Full-year profits should rise to between $1.80 per share and $1.90 per share -- at least 8% growth over last year's $1.67 in per-share profit.

What Jefferies said about that

Jefferies found these results impressive -- sufficiently so to justify assigning Booz Allen a buy rating. But why?

Booz Allen is projecting full-year sales growth of no more than 7%, which implies a slowdown from the 10%-plus growth experienced in fiscal Q2. And yet, according to a write-up on TheFly.com this morning, Jefferies still characterizes Booz's performance as "peer-leading revenue growth." For example, last quarter, Booz rival CACI International grew sales barely 2%, while SAIC's revenues actually shrank by nearly 2% year over year. In that context, Booz Allen's only modest revenue performance actually does appear to be "leading" its peers.

The bull case for Booz Allen Hamilton

What's more, Booz Allen's performance could be getting ready to take off. According to the company, total backlog at Booz soared more than 22% during the fiscal second quarter, reaching a new high of $16.7 billion. Booz Allen landed new contracts worth nearly three times the amount of revenue it recorded in the quarter during the quarter -- a book-to-bill ratio of 2.7 that management observed was "the second highest result since the Company's initial public offering." Assuming Booz Allen's backlog converts into sales over time (as one would imagine it should), Booz Allen's "revenue growth" could continue "leading" its rivals for years to come.

So could Booz Allen Hamilton's stock price.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.