Investors dump Booz Allen stock on DOJ probe news

Booz Allen Hamilton's stock was in freefall as the stock market opened Friday after the firm announced Thursday it is the subject of a civil and criminal investigation by the Justice Department.

Shares in Booz Allen plummeted 19 percent to $31.88 the first 20 minutes of trading. That amounts to a loss of around $1 billion in market capitalization. Volume of 3 million shares traded, which is three times the three-month average.

The DOJ probe centers around "certain elements of the company's cost accounting and indirect cost charging practices with the U.S. government," Booz Allen said in a regulatory filing Thursday.

"To date, our internal and external audit processes have not identified any significant deficiencies or material weaknesses, or identified any significant erroneous cost charging. The company is cooperating with the government in these matters and expects to bring them to an appropriate resolution," Booz Allen added.

This is not the first time Wall Street has sold off Booz Allen shares based off negative headlines. The stock closed 3 percent lower and hit an intraday decline of as much as 4 percent Oct. 5. That day news surfaced of the arrest of former employee Harold Martin on charges of stealing classified documents and computer code from the National Security Agency.

Booz Allen's stock has continuously set new all-time record highs since its 2010 initial public offering and has climbed 37 percent over the past 12 months through Thursday's close. Shares closed at $39.33 Thursday against a 52-week high of $39.67.

A Washington Technology analysis of 11 Wall Street analysts tracking Booz Allen shows a current average price target of $41.73.

The stock climbed nearly 1 percent a day after the initial June 2013 reports of former NSA contractor Edward Snowden's leak of classified information to media outlets. It fell almost 3 percent in the next week and quickly recovered its losses.

Two weeks after Martin's arrest became public, Booz Allen asked former FBI director Robert Mueller to lead an external review into the firm's practices. Mueller is also the special counsel overseeing the high-profile investigation into possible connections between President Donald Trump's 2016 election campaign and officials in Russia's government.

Almost 97 percent of Booz Allen's revenue for its 2017 fiscal year ended March 31 came from U.S. government contracts with 46 percent of sales from defense agencies including non-U.S. customers, according to regulatory filings. Nearly 23 percent of fiscal 2017 revenue was from intelligence agencies.

The company is ranked No. 8 on Washington Technology's 2017 Top 100 list of the largest government contractors.

Federal procurement regulations allow the Defense Department to withhold payments to a contractor in the event of financial impropriety at the company.