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Booz Allen Hamilton

Booz Allen Hamilton: A Market Leader But Overvalued

Booz Allen Hamilton Holding Corporation (BAH) is arguably the market leader in U.S. government services contracting. The company is also an under-the-radar dividend growth stock. The dividend has been raised for 8 consecutive years. Since Booz has not yet made it to Dividend Contender status, most dividend growth investors are not tracking this stock yet. The stock is a Dividend Challenger. There is a lot to like here from the perspective of dividend safety, dividend growth, market leadership, and backlog. Granted, debt was elevated, but the leverage ratio is improving. The market has recognized the positives and Booz Allen Hamilton is arguably overvalued at this point. Further, the stock is trading near its 52-week high. Hence, I am largely neutral on Booz at the moment. Investors should wait for a better entry point until Booz Allen Hamilton is not overvalued.

Overview of Booz Allen Hamilton

Booz Allen Hamilton traces its founding to 1914. The company was privately held until the IPO in late-2010. Booz is a leading provider of professional management and technology consulting services to the U.S government. Technology consulting services include information technology, cybersecurity, cloud computing, and engineering services. The company basically provides staffing to U.S. government clients. Booz has over 27,000 employees of which over 24,000 are consultants. About 96% of revenue was derived from contracts with the U.S. government. Revenue was 49% defense, 26% civil, 21% intelligence and 4% global commercial in Q3 FY 20 as seen in the chart below. The company had ~$7.5B in revenue in FY20.

Booz Allen Hamilton Revenue and Margins

Booz is a services company that derives its income from revenue by providing staffing to the U.S. government. Essentially, higher consulting headcount leads to higher revenue. From this perspective, Booz has been wildly successful, especially since the 2015 time period. The federal budget was relatively stagnant between 2009 and 2014…

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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.

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