In the years since September 11th, 2001, defense contractors have become a permanent fixture of the U.S. military-security apparatus. But while huge companies like Boeing (BA), Lockheed Martin (LMT) and Raytheon (RTN) make billions of dollars every year, even in times of sequestration, a number of smaller-sized companies also make their ostensible contributions to national security while taking home profits.
Booz Allen Hamilton Holding Corporation (BAH) is one such company. The $2.45 billion market-cap company is a management and technology consulting firm that went public with the help of the Carlyle Group in 2010. Last year Booz reported $1.3 billion in revenue from contracts with U.S. intelligence agencies alone, though it also provides services to non-military government agencies.
The company’s shares hit a pothole on Monday, dropping over 4 percent at one point and hovering around $17.34 at midday resulting from the revelation of classified information by NSA whistleblower Mark Snowden detailing the shadowy National Security Agency’s monitoring of user-data from telecom companies.
Snowden’s leak detailed the NSA’s PRISM program, described by director of National Intelligence James Clapper as "an internal government computer system used to facilitate the government's statutorily authorized collection of foreign intelligence information from electronic communication service providers under court supervision."
Indeed, the companies implicated in making user-data available to the government include all the telecoms, like Verizon (VZ) and AT&T (T), but also all the major tech firms like Google (GOOG), Facebook (FB), and Apple (AAPL). The information will not come as any kind of a surprise to those who follow national security matters regularly, but is significant all the same for providing a rare window onto the mechanisms of a specific program within the U.S. security apparatus.
For Booz Allen, who was hired by the NSA to help with the program, the leak is embarrassing and could scare off investors and clients for a number of reasons.
Government agencies, from whom Booz gets the vast majority of its contracts, will presumably not be happy with the fact that such a high-level leak could result from one of its employees who only worked there for some three months, but who had high enough clearance to access the data all the same.
The leak and subsequent media furor will also draw unwanted attention to the company’s involvement in what is clearly being understood as “spying on Americans” (and, of course, foreigners). While the NSA and the White House have repeatedly stressed that the content of phone calls and emails is not the target of the PRISM program, so much as the patterns of calls, emails, and internet activity, there is the enormous risk of public backlash that could brand the company with a scarlet letter of sorts.
But ethical investing is not a clear cut matter. For example, oil companies often see no significant dent in share prices after a spill, as was most recently the case with Exxon Mobil (XOM) after the Mayflower, Arkansas incident in late March of this year.
Furthermore, Booz has been enjoying a really good year so far. The $2.45 billion market cap company has seen shares advance over 30 percent year-to-date and nearly double over the past twelve months. If it can somehow show that the Snowden incident was a fluke, or an occurrence that can at least be avoided in the future, the company stands a good chance of continuing to receive government contracts, which will be good news to shareholders and prospective investors.
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