Investment Thesis
Booz Allen demonstrates strong cash generation with $951M free cash flow and resilient 9.2% operating margins, but faces revenue headwinds (-6.4% YoY) compounded by elevated leverage at 3.57x D/E ratio. The company's ability to sustain profitability depends on revenue stabilization and managing debt service through interest coverage of 4.9x.
Strengths
- Exceptional free cash flow generation of $951M with 8.5% FCF margin providing debt service capacity
- Capital-light business model with CapEx at only 0.8% of revenue enabling high cash conversion
- Resilient operating margins of 9.2% and net margins of 7.6% despite revenue decline
- Solid liquidity position with 1.78x current ratio and $728M cash balance
Risks
- Revenue contracted 6.4% YoY signaling potential market share loss or end-market weakness in core defense/consulting services
- Debt-to-equity ratio of 3.57x represents elevated financial leverage creating vulnerability to revenue deterioration
- Interest coverage ratio of 4.9x is thin with minimal cushion if operating cash flow declines further
- Net income flat YoY despite lower revenue indicates margin compression masking operational challenges
Key Metrics to Watch
- Revenue growth stabilization - critical inflection point determining leverage sustainability
- Operating cash flow trends - must remain above $1B to maintain 4.9x+ interest coverage
- Debt reduction trajectory - watch for deleveraging initiatives to reduce D/E below 3.0x
- Contract backlog and pipeline health - early indicators of revenue trajectory recovery
Financial Metrics
Revenue
11.2B
Net Income
851.0M
EPS (Diluted)
$6.90
Free Cash Flow
951.0M
Total Assets
7.1B
Cash
728.0M
Profitability Ratios
Gross Margin
N/A
Operating Margin
9.2%
Net Margin
7.6%
ROE
77.0%
ROA
12.0%
FCF Margin
8.5%
Balance Sheet & Liquidity
Current Ratio
1.78x
Quick Ratio
1.78x
Debt/Equity
3.57x
Debt/Assets
84.5%
Interest Coverage
4.87x
Long-term Debt
3.9B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-05-24T07:35:30.818972 |
Data as of: 2026-03-31 |
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