This Key Palantir Partner Was a Victim of DOGE Cuts, but Now the Stock's a Bargain

Elon Musk recently stated he was going to "significantly" cut back his time at the newly established Department of Government Efficiency (DOGE). While the DOGE initiative is officially sanctioned to run through July 4, 2026, a lot of the prospective cuts to government funding have already been reviewed.

As such, it's probably a good time to look at government-oriented consultancy stocks that have sold off in the recent austerity push.

Perhaps no other consultant has been demonized as much as Booz Allen Hamilton (NYSE: BAH), just due to the fact that it gets 100% of its business from the U.S. government. But that exposure is because of Booz's mission-critical position at the nexus of Defense, Intelligence, and leading-edge tech. For instance, Palantir (NASDAQ: PLTR) inked a big partnership with Booz Allen last December to implement its AI software for Defense agencies.

Last week, Booz Allen's stock sold off to 52-week lows on its fiscal fourth-quarter earnings call, revealing some near-term declines in one of its segments due to DOGE. However, the one-time reset and sell-off could be a great opportunity for long-term investors to buy the stock of this high-quality U.S. government supplier.

Booz Allen's "one-time" reset

Booz Allen sold off after management predicted a decline in its Civil agencies business as a result of DOGE cuts and slower government procurement. Booz Allen now predicts low double-digit declines in that segment this year and announced it would lay off around 7% of its workforce as a result.

In its recently completed fiscal 2025, Booz Allen got 35% of its revenue from its Civil business, while the remaining 65% was divided between Defense (49%) and Intelligence (16%).

But Booz Allen's Defense Intelligence businesses are thriving

The positive is that it doesn't appear Booz Allen's Defense and Intelligence franchises will be affected. After all, even the recent budget passed by the Republican-controlled House of Representatives provided for a $150 billion increase to the defense budget, amounting to a high-teens growth figure.

In fact, even though Booz Allen sees a low double-digit decline in its Civil business in fiscal 2026, the company still guided for overall 0% to 4% companywide growth this year. That means the Defense and Intelligence franchises will likely grow by double digits, in line with overall budget growth and in line with the past few years.

Image source: Getty Images.

With partnerships with top AI and tech companies like Palantir and all three of the major cloud giants, Booz Allen is at the heart of adapting the latest and greatest commercial innovations into usable products for government and defense agencies. Booz's main technologies involve key strategic areas like artificial intelligence, cybersecurity, digital transformation, space exploration, and next-gen technologies, including quantum computing.

Moreover, management pointed out the company's strong footprint in key areas within these categories, such as China-related defense, the southern border, and potentially the recently announced "Golden Dome" defense project, regarding which CEO Horacio Rozanski said, "We believe we have unique technology and capability to bring to bear."

Needless to say, the U.S. can't really fall behind in these critical areas, which likely means these segments will continue growing strongly.

A below-historical valuation for a great business

Looking forward to its guidance for the fiscal year ahead, management expects Booz Allen to earn between $6.20 and $6.55 in non-GAAP (adjusted) EPS, relative to the $6.35 Booz Allen earned in the recently completed year.

That puts the company's forward P/E ratio at about 16.9, much lower than the peak reached last year when the company's growth outlook was unimpeded and still significantly lower than the low-20s average of the past 10 years or so.

BAH PE Ratio data by YCharts

However, assuming the pullback in the Civil business is a one-time reset, earnings should continue to grow strongly beyond the first half of this year. It should be noted that Booz Allen has been overdelivering compared to its long-term targets over the past three years, growing its top line at 11.7% versus initial targets of 5% to 8% while also expanding margins.

Image source: Booz Allen Q4 presentation.

When combined with a continued share repurchase program -- Booz Allen retired 4.3% of its stock last year -- it's not a stretch to see earnings growing at a mid- to high-teens level once the reset on the Civil business is behind it.

Analysts still see Booz Allen continuing to grow earnings in fiscal 2027 (ending in March 2027), with an average estimate of $7.46 per share and the highest estimate at $7.90. Even putting just a 20 P/E multiple on those earnings, the low end of historical, would put the stock around $150 versus $108 today. Add in the company's 2% dividend, and Booz Allen seems to be a solid value pick after its post-earnings pullback.

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Billy Duberstein and/or his clients positions in Booz Allen Hamilton and has the following options: short December 2025 $55 puts on Booz Allen Hamilton. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool recommends Booz Allen Hamilton. The Motley Fool has a disclosure policy.