BAH presents a strong case for investors seeking value.
When it comes to investing, finding undervalued stocks with strong fundamentals is the holy grail. Booz Allen Hamilton (BAH), a leading management and technology consulting firm, has been making waves in the market, but is it a buy at its current price? Using Warren Buffett’s Discounted Cash Flow (DCF) method and the McGrew Valuation Method, I’ve analyzed BAH’s intrinsic value to determine whether it’s a screaming buy, a solid investment, or overpriced. Additionally, I’ll explore its trailing 12-month (TTM) Return on Equity (ROE) and Return on Net Tangible Equity (RoNTE) to gauge its financial efficiency. Let’s dive into the numbers and see if BAH is a hidden gem for investors in 2025.
Valuation Analysis: Buffett and McGrew Methods
To assess BAH’s intrinsic value, I employed two robust valuation techniques outlined in a detailed financial model: the Buffett Valuation Method and the McGrew Valuation Method. Both methods rely on Free Cash Flow (FCF) projections, discounted to present value, to estimate what BAH is truly worth per share. I used five years of financial data (2021–2025) from BAH’s quarterly cash flow statements, ensuring a comprehensive view of its performance.
Buffett Valuation Method
The Buffett method starts with BAH’s 2025 FCF of $911 million. Since the 3-year FCF Compound Annual Growth Rate (CAGR) is a robust 31.57% (driven by a low base in 2024), BAH qualifies as a growth stock, warranting a 10% growth rate for Years 1–10. I projected FCF forward, calculated a terminal value using a 2.5% perpetual growth rate and an 8% discount rate (4% Treasury + 4% premium), and discounted all cash flows back to the present. The total present value came to approximately $30.4 billion. Dividing by the current shares outstanding (124.88 million as of 03/31/2025), the intrinsic value per share is $243.44. Applying a 25% margin of safety, the target price is $182.58.
McGrew Valuation Method
The McGrew method uses a 5-year FCF CAGR of 6.42%, which is below 10%, classifying BAH as a non-growth stock. Thus, it mirrors the Buffett method’s non-growth parameters, using a 5% growth rate for Years 1–10. Starting with the same $911 million FCF, I projected cash flows, calculated a terminal value with the same 2.5% perpetual growth and 8% discount rate, and discounted them to a present value of about $20.63 billion. This yields an intrinsic value per share of $165.23, with a 25% margin of safety price of $123.92.
Valuation Status
With a last closing price of $148.87 (as of 06/20/2025, sourced from Yahoo Finance and Google Finance), I compared it to the intrinsic values:
- Buffett Valuation: The closing price is 61.16% of the intrinsic value ($243.44), well below the 75% threshold, making BAH a Screaming Buy.
- McGrew Valuation: The closing price is 90.10% of the intrinsic value ($165.23), falling between 75% and 93%, indicating a Buy.
Here’s the valuation table for easy reference:
| Stock Ticker | Valuation Method | Intrinsic Value per Share | Price with 25% Margin of Safety | Last Closing Price | Valuation Status |
|---|---|---|---|---|---|
| BAH | Buffett Valuation | $243.44 | $182.58 | $148.87 | Screaming Buy |
| BAH | McGrew Valuation | $165.23 | $123.92 | $148.87 | Buy |
Financial Efficiency: ROE and RoNTE
Beyond valuation, I calculated BAH’s TTM ROE and RoNTE to assess how efficiently it uses shareholders’ equity and tangible assets to generate profits.
Return on Equity (ROE)
ROE is calculated as TTM Net Income divided by Average Total Stockholders’ Equity. Using the financials, TTM Net Income (Q1–Q4 2025) is $935 million. The average stockholders’ equity, calculated over five quarters (Q4 2024 to Q4 2025), is approximately $1,108.9 million, but aligning with web-reported figures (e.g., StockAnalysis.com), a two-point average of $1,025 million (Q4 2024: $1,047M; Q4 2025: $1,003M) gives:
ROE=935,000,0001,025,000,000×100=91.22%\text{ROE} = \frac{935,000,000}{1,025,000,000} \times 100 = 91.22\%\text{ROE} = \frac{935,000,000}{1,025,000,000} \times 100 = 91.22\% This 91.22% ROE is exceptional, far exceeding the Professional Services industry average of 19–20% (per MacroTrends). However, BAH’s high debt-to-equity ratio (around 3.15, per GuruFocus) significantly boosts this figure, reflecting leverage-driven profitability.
Return on Net Tangible Equity (RoNTE)
RoNTE measures profitability relative to tangible equity (equity minus goodwill and intangibles). BAH’s balance sheet shows substantial goodwill ($2.4B) and intangible assets ($0.6B), resulting in negative net tangible equity. The average net tangible equity over the TTM period is approximately -$1,874.57 million. Dividing TTM Net Income by this yields:
RoNTE=935,000,000−1,874,570,000≈−49.87%\text{RoNTE} = \frac{935,000,000}{-1,874,570,000} \approx -49.87\%\text{RoNTE} = \frac{935,000,000}{-1,874,570,000} \approx -49.87\% A negative RoNTE is not meaningful in this context, as BAH’s business model relies heavily on intangible assets from acquisitions. This is common in consulting firms, where goodwill reflects acquired client relationships and expertise. The negative ratio underscores that BAH’s profitability is driven by intangible-heavy operations, not tangible assets.
Why BAH Looks Attractive
The valuation results paint a compelling picture. The Buffett Valuation’s Screaming Buy status suggests BAH is significantly undervalued, potentially due to market oversight or temporary factors like FCF volatility in 2024 ($192.1M vs. $911M in 2025). The McGrew Valuation’s Buy recommendation, with a more conservative 5% growth assumption, still indicates value at $148.87 compared to $165.23. The high ROE (91.22%) signals strong profitability, though investors should note the leverage risk, as high debt amplifies returns but also volatility.
BAH’s business, centered on government and defense consulting, benefits from stable demand, as evidenced by its $11.98 billion TTM revenue. However, FCF fluctuations (e.g., negative quarters in 2023 and 2024) and a high debt load (total debt ~$4.22B in Q4 2025) warrant caution. The negative net tangible equity highlights reliance on intangibles, which may concern investors prioritizing tangible asset strength.
Risks and Considerations
Several factors could impact BAH’s valuation:
- FCF Volatility: Quarterly FCF swings (e.g., -$82M in Q1 2024) suggest operational or contract timing risks, which inflated the 3-year CAGR (31.57%) used in the Buffett Valuation.
- Leverage: A debt-to-equity ratio of ~3.15 increases financial risk, especially if interest rates rise or contracts falter.
- Growth Assumptions: The Buffett Valuation’s 10% growth rate may be optimistic given the 5-year CAGR of 6.42%. The McGrew Valuation’s 5% rate aligns better with historical trends but may undervalue BAH’s growth potential in government tech consulting.
- Market Conditions: The $148.87 closing price (06/20/2025) may not reflect recent news or macroeconomic shifts, as some web sources reported a lower price ($109.81 on 05/27/2025).
Is BAH a Buy?
Booz Allen Hamilton presents a strong case for investors seeking value. The Buffett Valuation suggests a rare Screaming Buy opportunity, with a potential upside to $243.44, while the McGrew Valuation supports a Buy at $165.23. The sky-high ROE of 91.22% showcases efficient capital use, though tempered by high leverage and a non-meaningful RoNTE due to negative tangible equity. For risk-tolerant investors, BAH could be a gem, especially if government contracts remain robust. However, those wary of debt or FCF volatility may prefer to wait for a larger margin of safety.
Investors should monitor BAH’s debt management and FCF consistency while considering its strong market position in consulting. With a current price of $148.87, BAH appears undervalued, making it a stock to watch in 2025.
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