BofA: Booz Allen Hamilton An 'Attractive Buy Opportunity' On Pullback

In a report published Wednesday, BofA Merrill Lynch analysts maintained a Buy rating on Booz Allen Hamilton Trading Corporation BAH, while reducing the price objective from $35 to $30. Booz Allen's stock price declined by 11.8 percent after the company reported its 4Q15 results. The analysts view the recent weakness as a "particularly attractive buying opportunity." "Considering BAH's variable cost structure and its niche position to benefit from increased spending in cyber security by both the US government and the commercial sector, we expect BAH to trade at a premium to defense peers," the analysts added. The ending of the SURVIAC contract, which contributed about 12 percent of the company's sales in the past three years, is expected to restrict future earnings. In the report BofA Merrill Lynch noted, "After 4Q15 results, we are lowering our sales to $5.3bn from $5.4bn mainly to factor in the headwinds related to the end of the SURVIAC contract. We are lowering ourFY16e adjusted operating margin to 9.1% (up 24bps Y/Y) from 9.9% on higher bidding and proposal activity." Booz Allen is replacing the SURVIAC contract with a number of multiple-awarded ID/IQ contracts. The company expects to offset the negative impact of the expiry of the SURVIAC project by repositioning the new contract vehicles. The adjusted EPS estimates for FY16 and FY17 have been reduced from $1.84 to $1.65 and from $1.89 to $1.70, respectively.