Booz Allen (BAH) Benefits From Vision 2020 Amid Debt Woes

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We recently issued an updated report on Booz Allen Hamilton Holding Corporation BAH.

Shares of Booz Allen have gained 26.5% in the past year compared with the industry’s growth of 15.8%.

Vision 2020 Bodes Well

Booz Allen is currently in the process of implementing Vision 2020, a strategy aimed at countering competition and achieving sustainable growth. The strategy focuses on getting closer to clients’ core missions, increasing technical content of work, attracting and retaining talent from diverse areas of expertise, increasing innovation, creating a wide network of external partners and alliances and expansion into commercial and international business. Through implementation of Vision 2020, Booz Allen is seeing significantly higher backlog growth, a shift in talent to more technical expertise, strong organic revenue growth, boost in profitability, and margin expansion.

Notably, Booz Allen has developed its solutions business in a way that it creates differentiated business models and sales channels, increases client acquisition and enhances future revenue opportunities. The company also differentiated itself in the talent market so as to ensure attraction and retention of quality talent from diverse disciplines. These initiatives have enhanced its ability to bring a variety of offerings through which it has been winning highly technical, mission-critical work for its federal government business. All these ensure long-term growth for the company.

Debt Woes Stay

Meanwhile, Booz Allen has a debt-laden balance sheet. The total debt-to-total capital ratio of 0.75 was higher than the industry’s 0.65 and the previous quarter’s 0.73. Increasing debt to capitalization ratio indicates that the proportion of debt to finance the company’s assets is on the rise.

Further, cash and cash equivalent balance of $742 million at the end of the fourth quarter was well below the debt level, underscoring that the company doesn’t have enough cash to meet this debt burden. The cash level cannot even meet the short-term debt of $227 million.

Zacks Rank & Key Picks

Booz Allen carries a Zacks Rank #3 (Hold).

Some better-ranked stocks to consider in the broader Zacks Business Services sector are DocuSign, Inc. DOCU, SPS Commerce, Inc. SPSC and SailPoint Technologies Holdings, Inc. SAIL. All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term expected earnings per share (three to five years) growth rate for DocuSign, SPS Commerce and SailPoint is at 46.76%, 15% and 15%, respectively.

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