Booz Allen Hamilton (NYSE:BAH) up until today was an under the radar management consulting firm with a solid track record as far as its financial performance. As of today, nothing about the financial performance from the past matters. This name now should be considered untouchable for the time being. Late last week, a whistleblower revealed secrets with regards to a sensitive US government program being operated that collected enormous amounts of data that everyday citizens most likely considered private. Phone calls, emails, internet search history, you name it, and if the allegations prove to be true, this information was not as secret as you would have believed before last week. Over the weekend, it was revealed that the source of the leaks was an employee of Booz Allen. The admission by this employee with regards to the amount of supposedly classified access he had information to is absolutely startling. The ability of a private citizen, working for a private agency contracted by the US government, to blow the lid off of an intelligence and information gathering program is game changing. The political angle of this is best served for another article. The fallout from the events of this weekend very easily could amount to a paradigm shift in how private companies are awarded future work by the US government. There will be a price to pay for this breach of security, and while the person responsible for stealing the information is the ultimate responsible party, it is next to impossible to imagine a scenario where the company that employed this person does not suffer greatly in some manner. Booz Allen is attempting to aggressively distance itself from this incident, and investors should wait for the dust to settle before thinking a sell-off in this stock presents a buying opportunity. When almost the entirety of your business is tied to US government work, it is hard to envision a scenario where anyone can predict what the fallout for the company might be.
Why Booz Allen Is Now Untouchable
Booz Allen is deeply ingrained in the business of providing services and expertise to the US government. Last year, the company earned over 98% of its total revenue from US government contracts across various different entities. For example, contracts with the US Army accounted for 16% of total revenue for the company last year. Work for US intelligence agencies accounted for over 20% of the total revenue for the company. If you spend 5 minutes reading the FY2013 10-K for Booz Allen, it feels like you see "U.S. Government" mentioned in almost every single paragraph. The revelations from this past weekend should put the entirety of that revenue stream in jeopardy for the future. You can argue that this was the work of a rogue employee, and that is certainly true. However, companies have internal controls and other safeguards in place for a reason. It is not as if the person who leaked this information was able to recite from memory every detail about the program. The leak involved removing classified information, such as a PowerPoint presentation, from some sort of secure government system. This is a failure of control on the part of Booz Allen.
The implications of this revelation are wide ranging. Already, the pundits and talking heads alike are questioning how secure government information is in light of the significant increase of outsourcing work to private contractors. For better or worse, Booz Allen will now be the example used of the risks from outsourcing national security type work to private companies.
I purposely am not telling you anything about the balance sheet, income statement, growth potential (before this weekend), or other pertinent facts about Booz Allen. The reason is that these items do not matter, for now, in light of the news from this past weekend. Investors should avoid Booz Allen until the fallout from this security breach is quantifiable.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.