Booz Allen Hamilton and other government contractors got a lift as expectations around government spending cuts fell.
The company is not out of the woods yet, but for long-term focused investors, this could be an opportunity.
Defense contractors, and in particular the specialists that run information technology (IT) systems for the federal government, have been under pressure as the effort known as the Department of Government Efficiency (DOGE) looks for ways to cut costs.
In April, DOGE began to walk back some of its initial goals, and the defense stocks moved in the other direction. Shares of Booz Allen Hamilton (NYSE: BAH), a top IT specialist, gained 14.8% for the month, according to data provided by S&P Global Market Intelligence, as investor concerns about cuts began to ease.
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In theory, DOGE could be either a revenue drain or a windfall for IT specialists like Booz Allen Hamilton. On one hand, the government spends a lot of money on contractor services, and DOGE is looking for contracts to cut.
However, a lot of the business these companies do today involves work that at one time would have been done by full-time government employees. As agencies streamline, it arguably could create more opportunities for companies like Booz Allen Hamilton.
Booz shares were down about 20% for the year heading into April due largely to this uncertainty. But the stock jumped on April 2 after reports surfaced that DOGE head Elon Musk would soon be returning to his job as CEO of Tesla. Musk is still on the job in Washington but announced during Tesla’s late-April earnings call that he would soon be scaling back his government work.
There has also been a dialing back of expectations for DOGE from an initial target of about $2 trillion in annualized savings to a more modest $150 billion goal. While some of that total is still likely to come at the expense of Booz Allen Hamilton and other contractors, the smaller…
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