Oh, how much can happen in a day?
When I began writing this article yesterday, the U.S. was officially at war.
There was no other way to look at it after our late-night bombing raid on Iran over the weekend. We attacked three nuclear sites – an act Defense Secretary Pete Hegseth called “a deliberate and precise strike” that was “months and weeks” in the making.
Iran had already warned that direct U.S. involvement in Israel-Iranian aggressions would mean “all-out war.” And it was busy turning to Russia for help while I typed out my original introductory lines.
Trump, meanwhile, was declaring his willingness to escalate the situation further “if peace does not come quickly.” That’s why I decided to write about defense stocks for today.
Because, at the risk of being too blunt, it was looking like their payday.
War is expensive.
Take the B-2 Spirits America used to strike Iran’s nuclear sites. Developed by Northrop Grumman (NOC) in the late 1980s, this kind of aircraft is made for radar-evading stealth and precision.
They cost $2.1 billion each.
The missiles they reportedly used were Massive Ordnance Penetrators, or MOPs, developed by Boeing (BA). Each bomb weighed 30,000 pounds and could penetrate 200 feet of reinforced concrete.
They’re worth tens of millions of dollars each.
There’s always a price to pay for war. And there’s always someone who profits.
That might not be the most tactful way of putting it, but war is rarely about tact.
While I’m very happy all three parties involved (at least for the time being) might be back to using tact rather than million- and billion-dollar weaponry…
That doesn’t change the fact that tensions remain exceptionally high. And that certain industries make their money (or at least a bulk of it) from war.
Expensive Solutions to an Imperfect World
As a homeowner, I automatically put plumbers in the “makes money from suffering” category. But the medical profession, pharmaceuticals, and defense companies are probably the most obvious examples.
That’s not a condemnation, for the record. We live in an imperfect world. The longer the problem lasts, the more money it costs to fix.
As I (re)write this around 10:00 in the morning, it’s not completely clear whether the latest example of global imperfection is over. While President Trump announced last night that everyone involved had come to a ceasefire agreement, Israel has since accused Iran of launching missiles…
And retaliated.
Trump has since yelled at both for violating their pledges, and it appears he’s corralled them both back into “peace.” So we shall see what happens from here.
But even if we’re all done firing on each other for now, the world has been starkly reminded of how quickly war can erupt… and, therefore, how important it is to be properly prepared for conflict.
I’ll also point out the ongoing war in Ukraine, where the U.S. alone has spent at least $175 billion. And it’s not as if tensions between China and Taiwan have let up either.
The same is true between China and the U.S., for that matter. Despite recent trade progress, we’re still working with diametrically opposing worldviews.
Moreover, Israel is still fighting on multiple fronts outside of Iran. There are civil wars going on in Sudan and Myanmar, and the Pakistan-India conflict remains a very recent history.
In short, the case for defense stocks is just as clear this evening as it was yesterday afternoon. And while there are several to choose from, I’ve got one in particular in my sights.
Booz Allen Hamilton: The Defense Stock You Didn’t Know About
Booz Allen Hamilton (BAH) is known for providing national security solutions. As its own website heralds, it employs “intelligence experts at the forefront of analytics, cybersecurity, engineering, and digital transformation.”
So, naturally, its stock has fallen under Department of Government Efficiency (“DOGE”) cutback concerns. However, Booz – with its 110-year history – is also a leading management and technology consulting firm with plenty of defense clients.
Back in December, for instance, it partnered with Palantir Technologies (PLTR) to bring AI-infused software and hardware to U.S. warfighters. Booz, you see, has the largest AI business in the federal government and one of the largest cyber businesses in the world.
For the full fiscal 2025 year, Booz delivered over 12% revenue growth, with almost all of that being organic. This enabled the company to deliver yet another year of double-digit profit growth as well.
Adjusted earnings before interest, taxes, depreciation, and amortization (“EBITDA”) also increased 12% to $1.315 billion. This yielded an 11% adjusted EBITDA margin while adjusted diluted earnings per share rose over 15%.
Free cash flow now stands at a robust $911 million.
Speaking of such things, Booz sports an impressive balance sheet. It ended the fiscal year with:
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$885 million of cash on hand,
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Net debt of $3.1 billion, and
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2.4 times net leverage ratio.
But, again, because of DOGE scares, it’s trading at 15.8 times – a significant discount to its normal 20.6 times valuation. Palantir, meanwhile, which also invests in AI-infused software and hardware for warfighters, is trading at 284 times.
Source: FAST Graphs
Booz is a dividend-paying company that’s now yielding 2.2%. Considering its healthy 32% payout ratio, I suspect it will be growing its dividend from here.
Analysts certainly expect it to grow in general, with a consensus of 9% for fiscal year 2027 and 13% for 2018. That’s partially based on Booz’s last earnings call, where management said it expects “a meaningful reacceleration in the second half” of the year based on its backlog strength, pipeline opportunities, and internal expansion plans.
Source: FAST Graphs
As for me, I expect this defense stock to return over 25% in the next 12 months. And I’m officially adding it to Wide Moat Research’s watchlist.
Regards,
Brad Thomas
Editor, Wide Moat Daily
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