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Why Booz Allen (BAH) Stock Should be in Your Portfolio?

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Booz Allen Hamilton Holding Corporation (BAH - Free Report) has an impressive Growth Score of A. This style score condenses all the essential metrics from the company’s financial statements to get a true sense of quality and sustainability of its growth.

The company has an expected long-term earnings per share (three to five years) growth rate of 10.6%. Further, earnings are anticipated to register 17.3% growth in fiscal 2021 and 10.9% in fiscal 2022.

Shares of Booz Allen have gained 21.3% in the past year compared with the industry’s 11.6% rally.

Driving Factors

Vision 2020, Booz Allen’s transformation strategy, aimed at creating sustainable expansion, has been fetching significant headcount and backlog growth. Its implementation has boosted the company’s organic-revenue growth and strengthened its profitability position. Notably, the company’s adjusted EPS of $1.03 increased 12% year over year in the last reported quarter. Revenues, backlog and headcount surged 11%, 7.4% and 2.4%, respectively, year over year.

Booz Allen is focusing on areas such as artificial intelligence, advanced engineering, directed energy and modern digital platforms to drive innovation. It is developing mechanics and infrastructure for new and disruptive business models to enhance service quality and client satisfaction. Transformative solutions created by such efforts are expected to significantly enhance future revenue opportunities for the company.

Booz Allen has a large addressable market as it serves the U.S. government, one of the world’s largest consumers of technology and management-consulting services. Also, the agencies of the U.S. intelligence community offer an additional market. Further, the company has a lot of opportunities in global commercial markets where it has relatively low penetration.

Some Risks

Booz Allen's total debt to total capital ratio of 0.71 at the end of the second quarter of fiscal 2021 was higher than the previous quarter's 0.7. A high debt to capitalization ratio indicates that the proportion of debt to finance the company’s assets is on the rise.

Further, cash and cash equivalent balance of $1.3 billion at the end of quarter was well below the debt level of $2.3 billion, underscoring that the company doesn’t have enough cash to meet this debt burden. Nevertheless, the cash level can meet short-term debt of $78 million.

Zacks Rank and Stocks to Consider

Booz Allen currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader Zacks Business Services sector are ManpowerGroup Inc. (MAN - Free Report) , Gartner, Inc. (IT - Free Report) and Insperity, Inc. (NSP - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Long-term earnings (three to five years) growth rate for ManpowerGroup, Gartner and Insperity is estimated at 1.5%, 13.5% and 15%, respectively.

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