Monday's IBD 50 Stocks to Watch pick is a leading defense IT stock in a flat base nearing a buy point. Booz Allen Hamilton is No. 1 in its industry and hit a new high on its relative strength line.
McLean-Va.-based Booz Allen Hamilton specializes in data analytics, cybersecurity, digital solutions, engineering and consulting. The company provides services to defense, homeland security, civil governments, space, health and commercial services industries. Defense clients include all four branches of the U.S. military.
On Monday, the company announced its high-energy laser weapon system (HELworks). The system consists of three products:
1) The High Energy Laser Mission Equipment Package (HEL MEP) is a weapon system for use in Stryker armored vehicles.
2) The Modular Compact High Energy Laser (MCHEL) is designed for ground engagements.
3) LightEngine is a fully integrated subsystem consisting of power, cooling, lasers and integrated packaging. Its capability has minimal impact from the platform and can be integrated with third-party components.
IT Stock In A Base Approaching New Highs
The stock is in a flat base nearing a 99.41 buy point on the MarketSmith chart. The relative strength line hit a new high, as indicated by the blue dot on the MarketSmith chart. Shares rose above the 50-day moving average a week ago in heavy volume, another positive sign. Shares are 3% below the buy point.
Shares dipped 0.7% in light volume on Monday afternoon.
Leading Group Is Moving Up
BAH holds the top spot in the Commercial Services-Consulting industry group. The group is ranked 23rd out of 197 IBD groups, a slight improvement from the 24th spot one week ago and 49th spot four weeks ago.
Booz Allen has a high 96 Composite Rating and an 87 EPS Rating. Earnings declines in the past four quarters hurt the EPS Rating. Still, the stock holds a 92 Relative Strength Rating, meaning it outperformed 92% of the stocks IBD tracks in the last 12 months.
Earnings Report Beat On Both Fronts
Booz Allen beat on its fiscal Q1 2023 EPS and sales, reported July 29.
"We are pleased to enter the fiscal year and our three-year Investment Thesis period with strong performance in line with our expectations. In a continuously dynamic environment, we remain focused on building strategic momentum through operational excellence, critical mission delivery and investment in our exceptional workforce as we drive the digital future together," said Horacio Rozanski, president and CEO.
Management reiterated its 5%-9% revenue growth guidance for fiscal 2023, which ends in March.
Quarterly EPS has been erratic in the last six quarters, although it's improving. EPS for the June-ended quarter rose to $1.13, up 6% from the year-ago period and from 86 cents in the March period.
Analysts project 4% annual EPS growth in fiscal 2023 and 11% growth in fiscal 2024. Booz Allen Hamilton has a 16% three-year EPS growth rate, according to the IBD Stock Checkup.
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The company's quarterly sales growth accelerated from 4% in the September 2021 quarter to 7%, 13% and 13% again in subsequent quarters.
Booz Allen Hamilton has a 54% return on equity, a measure of financial efficiency. The CAN SLIM investing strategy seeks companies with a minimum of 17% ROE, with the best-performing growth stocks often showing 25% to 50%.
The IT stock pays a 1.8% annualized dividend yield to shareholders.
Institutions Are Giving Mixed Signals
Mutual funds own 54% of the shares, with 1,139 owning the IT stock in September, down from 1,160 on June. The CAN SLIM method looks for increased institutional sponsorship.
Stifel raised its price target to 105 from 102, maintaining its buy rating on the IT stock on Sept. 13.
