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Why Shares of Booz Allen Hamilton Plunged on Friday

By Lou Whiteman - Jan 29, 2021 at 5:29PM

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Quarterly results provided little reason for investors to get excited.

What happened

Booz Allen Hamilton (BAH -2.47%) reported a largely disappointing quarter on Friday. Investors responded by heading for the exits, sending shares of the government contractor down 10.7% on the day.

So what

Before markets opened on Friday, Booz Allen said it earned $1.04 per share in its fiscal third quarter on revenue of $1.9 billion. The per-share number beat the Wall Street consensus estimate of 93 cents in earnings, but the revenue was about $100 million light.

The earnings beat was nothing to crow about, as it was driven largely by a better-than-expected tax rate and not strong operations.

Aerial view of the Pentagon

Image source: Getty Images.

For the full fiscal year, Booz Allen said it expects to earn between $3.70 and $3.82 per share. That's a boost over its prior guidance for $3.60 to $3.75 per share in earnings, but still well below the consensus $4.20 per-share estimate.

The company's book to bill, a measure of how much new business was won in the quarter compared with how much business was billed during the period, came in at an anemic 0.32. And its backlog fell to $23.3 billion at quarter's end, down from $24.6 billion at the end of the fiscal second quarter.

Now what

The good news from the quarter was that free cash flow of $217 million was much higher than expected, and Booz Allen boosted full-year estimates for cash from operations by $25 million to $625 million to $675 million.

And though the company is still not at Wall Street's target, the earnings-per-share boost is a step in the right direction. The fiscal third quarter has typically been a weak book-to-bill period, so hopefully it is not a sign of things to come for the company.

Booz Allen has a solid business and a long track record, beating the S&P 500 by more than 100 percentage points over the past decade. But these earnings played into the worst fears for defense investors, namely that a new administration and added government spending due to the pandemic would slow government contracting revenues in 2021.

The quarterly results, if nothing else, provided little to allay those fears.

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