The public build-up of cybersecurity infrastructure is happening, and it will be a big deal for investors, explains Jon Markman, a long-term growth stock expert and editor of Strategic Advantage.
The State Department finally announced that it will launch a cybersecurity digital policy bureau. The agency will begin with 60 staffers and add 30 additional positions later this year. To capitalize, take a look at federal contractor Booz Allen Hamilton (BAH).
The need for national cybersecurity infrastructure is not a partisan issue. Rising ransomware attacks at the corporate level and full-blown assaults on public infrastructure have become commonplace. More importantly, the attackers are often state sponsored.
A report from Center for Strategic and International Studies found that North Korea, China and Russia were the most prolific sponsors of attacks on Western businesses and government infrastructure. The digital landscape is the new battlefield for political conflict, and it is getting messy.
Booz Allen Hamilton is uniquely positioned to benefit from the buildout of national cybersecurity infrastructure. The Virginia-based information technology consulting firm is among the biggest players in government IT contracting.
The business has been a mainstay for cybersecurity investors for its prowess in winning government contracts to speed the transition from analog to digital processes. Helping to create a workable, national cybersecurity platform would be the ultimate transition.
Government contracts are not like run of the mill enterprise agreements. They take time to negotiate. Companies must be strenuously vetted, leading to a decidedly narrow field of potential candidates.
Working with government agencies is the core of Booz Allen Hamilton's business. And as a consultancy, it is the ability to scale up and down to meet challenges large and small. It offers engineering, data analytics, consulting and cyber expertise.
Those services are going to come in handy as Washington starts to build out a bureaucratic national cybersecurity footprint. With 24,600 employees, BAH has the scale to help build that platform.
Speaking with analysts in January, Horacio Rozanski, chief executive officer told analysts that growth will accelerate as the company builds “scaled positions in critical areas such as cyber and digital battlespace”.
Shares have been on a tear since March when they bottomed below $70. At the current price of $87.57 the stock trades at only 19.3x forward earnings and a paltry 1.4x sales. The market capitalization has reached $11.5 billion, the highest level since January 2021.
Given the potential size of the cyber market, the stock is still cheap. Don’t buy quite yet, however, as shares have stalled at their 2021 highs. Wait for the next pullback toward $79.
