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Investing.com -- Shares of Booz Allen Hamilton Holding (NYSE:BAH) dropped 2.3%, while Accenture plc (NYSE:ACN) saw a 2.2% decrease following the Pentagon's decision to terminate $5 billion in IT services and consulting contracts. This move comes amid efforts to reduce consultancy spending deemed non-essential by Defense Secretary Pete Hegseth, stating the work could be more efficiently carried out by Pentagon staff.
The terminated contracts, which included those with Deloitte, Accenture, and Booz Allen Hamilton, were part of a broader initiative to eliminate what Hegseth called "$5.1B in wasteful spending." The Pentagon expects to save nearly $4 billion with this action, with over $1 billion already disbursed.
The news comes after the General Services Administration called for contract terminations for each of the above consultants in late February. GSA Administrator Stephen Ehikian claimed doing so was "consistent with the goals and directives of the Trump administration to eliminate waste, reduce spending, and increase efficiency."
The GSA has been teaming with Elon Musk's Department of Government Efficiency (DOGE) to cut federal spending for all initiatives deemed "waste, fraud, and abuse." Musk recently projected DOGE to save the U.S. government more than $150 billion in cuts in 2026.
In response to the contract cancellations, Goldman Sachs (NYSE:GS) analyst Noah Poponak downgraded Booz Allen Hamilton from Buy to Neutral and reduced the price target from $150.00 to $109.00. Poponak commented, "We believed the company’s expertise in AI and Cyber gave it exposure to high growing and insulated areas of the Federal spend, but the company has been more negatively impacted by DOGE contract reductions than we anticipated. We see risk to estimates as results are reported in the coming quarters."
Baird analyst David Koning maintained Accenture at an Outperform stock rating and a $372 price target, saying "We view the stock as attractive, given Managed Services (~50% of total revenue) is highly recurring, and Consulting (~50%) benefits from changing tech/new developments (like GenAI). In addition, valuation is near its five-year relative low against the S&P, and the company has the safety of a strong net cash balance sheet and very good FCF conversion (well over 100%)."
The cutbacks reflect a significant shift in the Pentagon's approach to managing its consultancy and IT services, with an emphasis on internalizing tasks to save costs. The impact of these terminations on the companies involved is expected to be scrutinized closely by investors as future performance estimates are adjusted to account for the lost contracts.
