What happened
Defense IT specialist Booz Allen Hamilton (BAH -0.42%) delivered quarterly earnings that came in ahead of expectations, but revenue was light, and 2022 guidance was reduced. Investors were not pleased, sending the shares down as much as 10% on Friday.
So what
Booz Allen, one of the leading providers of technology and consulting services to the Pentagon and other government agencies, reported fiscal third-quarter earnings of $1.02 per share. That beat the $0.99 per-share consensus estimate. However, revenue of $2.03 billion came in about $100 million short of expectations.
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Booz Allen also reduced its full-year sales guidance from 8.5% growth, at the midpoint, to 6.5% growth, and reaffirmed its previous guidance to expect full-year earnings of between $4.10 and $4.30 per share. The guidance was likely a disappointment to Wall Street, with analysts forecasting full-year earnings of $4.25 per share.
Defense contractors have reported anemic revenue growth in recent quarters, in part due to Pentagon delays on procurement resulting from pandemic-related issues and the government's 2021 focus on getting troops out of Afghanistan. Booz Allen appears to be caught up in this trend. The book-to-bill ratio, a measure of how much business came in this quarter compared to what was billed out, was a disappointing 0.39x.
Now what
The results were a disappointment, but Friday's drop is an overreaction. Booz Allen, through nine months of its fiscal year, has seen revenue growth of 4.2%, and the company also raised its quarterly dividend by six cents, or 16%, to $0.43 per share.
More importantly, headcount was up 6.8% year over year. A staffing increase is a key indicator of future revenue.
With Friday's decline, Booz Allen Hamilton shares are now down 23% over the past 12 months. It appears growth might not accelerate until the second half of 2022, but Booz Allen Hamilton remains set up well to benefit as government contracting normalizes. For patient investors, this dip is a buying opportunity.
