Booz Allen: Why Performance is a Non-Issue For Investors and Government Agencies

Michael Teague  |

On Wednesday, July 31, defense contractor Booz Allen Hamilton (BAH) released a fiscal first-quarter earnings report that crushed expectations, to the delight of investors, sending the company’s shares up approximately 10 percent to a closing price of $21.38.

Booz reported net income of $70.3 million, or $0.48 per share, a significant improvement on the prior-year period during which the company made $61.9 million, or $0.43 per share, with revenue up slightly at $1.43 billion. It was a fairly large step up from the $0.39 per share that analysts had expected, and the company also beat bottom-line forecasts of $1.41 billion.

Furthermore, despite sequestration-related budget cuts which during the recently ended quarter have cost the company some money on government contracts, the privately-owned defense firm reported that it had won new contracts with the US Army, Navy, and Department of Veteran’s Affairs.

One could perhaps be forgiven for reflexively lifting an eyebrow at this news. As is by now well-known, Booz Allen Hamilton is the company from which the young computer analyst Edward Snowden surreptitiously obtained, and subsequently released, substantial and highly sensitive information regarding the shadowy National Security Agency’s domestic and foreign intelligence gathering programs.

Readers familiar with national security issues are likely to already be aware of the fact that over two-thirds of the US national security budget is now paid out to private, for-profit contractors like Booz. Irrespective of one’s feelings about contractors and the spying that they are hired to do, it is hard not to wonder at the company’s garnering of new government contracts much less that a strong earnings report sent shares up so sharply. For while many politicians and media pundits have placed the blame for this “incident” on Snowden himself, a significant portion of the blame must also be put on Booz Allen, who should bear some responsibility for allowing an employee of only three months slip off to the other side of the globe in possession of such highly sensitive government information.

Setting aside the ethical and moral aspects of Snowden’s NSA leaks, there is still the issue of performance that seems to not be much of a factor, at least not for investors. And while the company’s stock did drop 4 percent in the wake of the original revelations, Booz Allen Hamilton seems not to have skipped a beat. Shares are up 10 percent over the past week, 18 percent over the past month, and 37 percent for the quarter, and the company still continues, at least by its own accounts, to get government contracts.

[Image: A slide of Booz Allen Hamilton's XKeyscore internet spying tool, courtesy of Flickr Creative Commons]

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