Government IT specialist Booz Allen Hamilton (BAH -15.25%) reported earnings that matched expectations, but the weight of federal belt-tightening appears to be taking its toll.

Shares of Booz Allen Hamilton traded down 17% as of 9:45 a.m. ET after the company set a cautious tone for the year to come.

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Feeling the pressure from DOGE

Booz Allen Hamilton is a leader among the so-called "Beltway Bandits," a group of defense contractors that specialize in running government IT systems and doing consulting work for the Pentagon and civil agencies.

The company earned $1.61 in the quarter, up 21% year over year and matching expectations. But revenue of $2.97 billion, while up 6% adjusting for acquisitions, fell about $50 million short of expectations. Defense sales led the way up 14% and intel sales climbed by 3%, but work for civil agencies was down slightly.

It was the forecast for what is to come that moved investors to the sidelines.

The company noted in its 10-K regulatory filing that the new administration is shifting away from so-called "cost plus" contracts, which guarantee contractors a rate of return, to fixed price. It is also seeing a delay in the government processing new security clearances, which impacts Booz's ability to hire and take on new work, and has seen some contracts adjusted or canceled by the Department of Government Efficiency (DOGE).

Headcount, an indicator of future business growth, was down slightly from the previous quarter, and Booz Allen forecast a 7% reduction in headcount in the current quarter.

Overall, Booz Allen is forecasting sales of between $12 billion and $12.5 billion in its new fiscal year and earnings of $6.20 to $655 per share. Both ranges are below Wall Street's consensus estimate for $6.88 per share in earnings on $12.8 billion in sales.

Is Booz Allen Hamilton a buy?

This is a volatile period for government contractors, but the long-term bull case remains intact. While some contracts are being adjusted today the vision of a smaller government will likely require more tasks to be outsourced to the likes of Booz Allen Hamilton and others. Booz Allen's substantial business serving the intelligence community should hold up better than civil engagements, as it is more complicated to swap out one vendor for another in classified areas.

With Friday's drop, Booz Allen Hamilton is trading at levels last seen in mid-2023. Trading at 15 times expected earnings and 1 times expected sales, Booz Allen looks like good value for those with the patience to ride out this storm.