Booz Allen Estimate Lowered by Susquehanna on Contract Risks

Intelligence agencies may freeze certain Booz Allen Hamilton Holding Corp. projects while they review its handling of classified information after an employee revealed a secret U.S. electronic surveillance program, according to Susquehanna Financial Group.

“There is real contract risk” for Booz Allen, majority owned by the Washington-based private-equity firm Carlyle Group LP (CG), Susquehanna analyst James Friedman said in a note today. He dropped estimated earnings per share to $1.40 from $1.47 for the current fiscal year.

Booz Allen, based in McLean, Virginia, dropped 2.3 percent to $16.76 at 12:54 p.m. in New York after earlier declining as much as 3.7 percent.

The shares have fallen 6.9 percent since a former employee, Edward Snowden, over the weekend said he had provided journalists with secret documents describing U.S. surveillance programs.

Booz Allen yesterday said it had fired Snowden, 29, whom it employed as a technical assistant in Hawaii.

The company received 23 percent, or $1.3 billion, of its $5.76 billion in fiscal 2013 revenue from intelligence agencies, according to a regulatory filing.

Friedman’s reduced estimate reflects the possibility that contracts making up about 4 percent of the firm’s intelligence revenue may be put on hold pending a review, according to the note. The company will probably need to increase spending on compliance-related controls, Friedman wrote.

Intelligence Agencies

He maintained his “negative” rating on the stock, a view he’s held since September 2011.

The leak investigation “does not immediately affect the ‘BB’ corporate credit rating on the company,” Standard & Poor’s said today in a statement.

William Loomis, an analyst at Stifel Nicolaus & Co. in Baltimore, said he doesn’t expect investigations into the leak to cause major disruptions to Booz Allen’s intelligence work.

“When you’re looking at Booz’s intelligence business overall, I think it’s pretty unlikely that it will have a material effect,” he said in a phone interview.

James Fisher, a Booz Allen spokesman, declined to comment on the Susquehanna report.

While the government can halt a contractor’s work at any time, ordering a work stoppage because of the leak is “extremely implausible,” said Dan Gordon, a former top procurement official in President Barack Obama’s administration.

Suspension Unlikely

“Stopping work on a current contract is actually viewed as more disruptive to the government,” Gordon, who is now a dean at George Washington University Law School, said in a phone interview. “The government ends up suffering when you stop work on an ongoing project.”

U.S. officials could suspend Booz Allen from new awards, though that punishment is also unlikely, Gordon said. Federal contractors such as Booz Allen, the 13th biggest according to a Bloomberg Government ranking, are adept at avoiding suspension, he said.

“If it were to happen, I would expect it to be lifted very quickly, because I would suspect Booz Allen and their lawyers would be at the government’s doors banging and saying we want to talk to you,” Gordon said. “They would say what they needed to say and do what they needed to do to persuade the government to lift the suspension.”

To contact the reporters on this story: Todd Shields in Washington at tshields3@bloomberg.net; Nick Taborek in Washington at ntaborek@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net

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