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Why Is Booz Allen (BAH) Up 6.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Booz Allen Hamilton (BAH - Free Report) . Shares have added about 6.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Booz Allen due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Booz Allen Q2 Earnings Beat Estimates, 2019 EPS View Up

Booz Allen reported mixed second-quarter fiscal 2019 results, wherein the company’s earnings surpassed the Zacks Consensus Estimate but revenues missed the same.

Adjusted earnings per share (EPS) of 68 cents beat the consensus mark by 8 cents and improved on a year-over-year basis. The bottom line benefited from revenue growth, improved margins, lower tax rate and positive impact of 18 cents due to lower diluted share count.

Total revenues of $1.61 billion lagged the consensus estimate by $26 million but increased 4.6% year over year. The top line was driven by a year-over-year decline in billable expenses. Notably, billable expenses accounted for 29.6% of revenues in the reported quarter.

Revenues excluding billable expenses were $1.14 billion, up 7.2% on a year-over-year basis. Booz Allen earns the maximum amount of profit from revenues, excluding billable expenses.

Book-to-bill ratio was 3.66 (up 35.6% y/y) for the reported quarter, recording the highest level since the company's IPO. Total backlog increased 28.1% from the prior-year quarter to $21.37 billion. While funded backlog of $4.18 billion improved 16.5%, unfunded backlog grew 23.7% to $4.77 billion. Priced options went up 34.4% to $12.41 billion.

Headcount of 25,344 increased 4.6% year over year, reflecting the company’s strength in hiring in second-quarter fiscal 2019.

Operating Results

Adjusted EBITDA of $163.83 million increased 10% year over year. Adjusted EBITDA margin rose to 10.2% from 9.7% in the year-ago quarter. The marginal growth was driven by strong contract level performance, lower than anticipated billable expense ratio, solid cost management and timing of certain cost recoveries.

Adjusted operating income was $147.41 million, up 10.9% year over year. Adjusted operating income margin on revenues was 9.1% compared with 8.6% in the year-ago quarter.

Total operating costs and expenses increased 4.3% year over year to $1.47 billion.

Balance Sheet & Cash Flow

Booz Allen exited second-quarter fiscal 2019 with cash and cash equivalents of $342.59 million compared with $149.72 million at the end of the prior quarter. Long-term debt (net of current portion) was $1.72 billion compared with $1.74 billion at the end of the prior quarter.

The company generated $301.6 million of net cash from operating activities in the reported quarter. Free cash flow was $282.39 million. Capital expenditure was $19.2 million.

The company declared a quarterly cash dividend of 19 cents per share, payable on Nov 30, to stockholders of record as of Nov 14. The company paid dividends worth $27.22 million and repurchased shares worth $44.53 million in the reported quarter.

Fiscal 2019 Outlook

For fiscal 2019, Booz Allen reaffirmed its guidance for revenue growth and raised the same for adjusted EPS. The company continues to expect revenue growth of 6-8%.

Adjusted EPS is anticipated in the range of $2.55-$2.65 compared with $2.35-$2.50 mentioned earlier. The upward EPS guidance is based on fiscal 2019 estimated average diluted shares outstanding of 141-144 million and an expected effective tax rate of 24-26%.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months.

VGM Scores

Currently, Booz Allen has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile 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 #2 (Buy). We expect an above average return from the stock in the next few months.




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