Booz Allen Hamilton (BAH)

Booz Allen Hamilton stock is -50% over the past 2 years and flat over the last 6.5. Almost all their revenue comes from government work. Treasury recently cancelled $21MM worth of department contracts and Scott Bessent said the agency no longer had confidence in the company after a former BAH employee leaked Donald Trump's tax returns and data on others (despite the theft having occurred on government systems, not Booz Allen's). Civil demand has also been weak.

My bet is this is all more temporary than permanent. Booz Allen Hamilton does mission-critical work for the defense and intelligence communities. It's a business that requires reputation, clearances, relationships and a track record. I think that outlives the current administration's hostilities. Replacing defense and intelligence work is a lot harder than the recent Treasury headlines suggest.

Booz Allen Hamilton is similar to Omnicom in that it generates high returns on tangible assets but modest profit per employee – it's a people business with low capital requirements.

The main risks are clear – the business relies on the federal budget and contracts. Shutdowns, contract cancellations etc are headwinds, albeit in most cases temporary. Civil demand has already been weak.

The company recently cut free cash flow guidance from $850-950MM to $825-900MM with top line declines of 5-6%.

At the end of the day I think the company outlives the temporary headwinds they're experiencing. On a normalized basis, I think a conservative estimate of value is $80-115 per share. Since it's below the low end of that range, I've started buying.