BofA Downgrades Booz Allen (BAH) After Disappointing Q2 Earnings

BofA Securities has made significant changes to its outlook on Booz Allen Hamilton (BAH) stock following disappointing second-quarter earnings. The defense and consulting firm announced weaker-than-expected financial results and revised its annual forecast downward.

BofA Downgrades Booz Allen Hamilton Stock

The investment firm has downgraded BAH from Buy to Sell. This decision reflects rising concerns over the slowdown in the company’s Civil business segment, which contributes approximately one-third of its total revenue. Alongside the downgrade, BofA slashed its price target for BAH from $160 to $90.

Q2 Financial Results

Booz Allen reported adjusted earnings of $1.49 per share, falling short of market expectations of $1.51. Revenues fell by 8.1% year-over-year to $2.89 billion, below analysts’ forecasts of $2.97 billion. This decline is primarily attributed to a 22% drop in the Civil business caused by a slowdown in contract awards and uncertainties surrounding government funding.

• Adjusted EPS: $1.49 (vs. analysts’ expectations of $1.51)
• Q2 Revenue: $2.89 billion (down 8.1% year-over-year)
• Revenue Forecast: Revised guidance of $11.3 billion to $11.5 billion for Fiscal 2026

Cost-Cutting Measures

In response to revenue declines, Booz Allen is implementing cost-cutting strategies, including layoffs of senior-level positions. Despite these challenges, the company reported a 2.9% growth in its backlog, now totaling $40 billion, with a book-to-bill ratio of 1.7, indicating strong long-term demand.

Revised Financial Guidance

Booz Allen has adjusted its revenue projections for Fiscal 2026 due to ongoing uncertainties in government budgets. It now expects revenues to be between $11.3 billion and $11.5 billion, down from a previous range of $12 billion to $12.5 billion. Additionally, the company revised its adjusted EPS guidance to $5.45 to $5.65, down from $6.20 to $6.55.

Amid these developments, Booz Allen cautioned that a potential U.S. government shutdown could further negatively impact its business operations.

BofA’s Insights on Civil Revenue Decline

BofA has indicated it underestimated the challenges facing Booz Allen’s Civil business. They foresee a potential 30% decline in Civil revenue during the second half of fiscal 2026 and the first half of fiscal 2027, significantly sharper than the prior estimate of a 5% drop. While Booz Allen continues to excel in its National Security operations as well as advanced technology, including AI and cybersecurity, BofA does not anticipate these areas to mitigate near-term pressures from the Civil segment.

Current Market Consensus

As of now, BAH stocks hold a consensus rating of Hold among analysts. This rating reflects two Buy, five Hold, and three Sell recommendations issued over the past three months. Currently priced at $115.63, the average target for Booz Allen stock suggests a potential upside of 26.51%.