Summary
- The company has had a few great quarters in succession, which has caused the shares to trade significantly higher this year.
- A healthy backlog, improving margins, and favorable pricing continues to outperform analysts' expectations.
- Nevertheless, the company's debt raises its risk profile significantly. This punishes the stock's valuation.
- My DCF model suggests that BAH's fair value is $46.53, which implies a 24% potential downside.
- As a whole, BAH is a well-run company with promising prospects. However, the current price tag makes the shares a "hold" at this point.
Booz Allen Hamilton (NYSE: BAH) is a consulting firm that works closely with the US government. Most of its contracts are tied to the defense sector. Over the past few quarters, the company has enjoyed the benefits of excellent execution, good contract volume, favorable pricing, and expanding margins. However, my DCF model on the company suggests that investors are currently ignoring the effect of the company’s debt on its valuation. Thus, BAH’s real value is likely below its current share price.
Source: Booz Allen Hamilton.
