Edward Snowden NSA Leak Won't Likely Hurt Booz Allen Business

Expect the company to bounce back from its Edward Snowden problems.

Edward Snowden.
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Booz Allen Hamilton is not having a great week, to put it mildly.

One of its workers was the source of high-profile leaks of secret government surveillance information. The company fired that employee, Edward Snowden, on Tuesday after its stock dropped dramatically on Monday after news of the leak's source broke. It is currently trading around $17 per share, 4 percent below Friday's closing price.

Booz Allen Hamilton's stock dropped precipitously once Edward Snowden revealed he leaked classified information while employed at the company. (Yahoo Finance)

Still, don't expect the company to remain shaken for long. Booz Allen will likely weather this crisis unscathed, as will its contracting brethren.

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"There's certainly some negative press and a PR and perceptual challenge for [Booz Allen Hamilton]. But in terms of their business with the government, I don't think it's going to really have an impact," says George Price, senior vice president and senior equity research analyst at BB&T Capital Markets. Though Booz Allen definitely has a PR problem on its hands for now, as might the contracting industry as a whole, Price believes that both government agencies and investors won't hold it against the company that an employee decided to blow the whistle.

"I think this is going to be viewed as a one-off, rogue situation, and not something where people go back and say 'Booz Allen, this is your fault. We're not going to do business with you anymore,'" he says.

The company declined to comment for this story.

From Booz Allen's perspective, there's only one giant client to worry about: Over 99 percent of Booz Allen's business comes from the government, and that business is big. Booz Allen is among the government's largest contractors, winning over $4 billion in government contracts in fiscal year 2012, according to USASpending.gov. While that's dwarfed by massive defense contractors like Lockheed Martin ($35.8 billion) and Boeing ($29.1 billion), it is also enough to make Booz Allen Hamilton the 14th-largest recipient of government contracts last year.

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That massive business isn't going anywhere, says one contracting expert. That's because, despite the media frenzy and public outrage, the leak itself was minor.

"I don't see this as a major breach where the company was hacked, or a hard drive, or a server walked out of their facility or thousands or millions of records on individuals have been leaked," says Scott Amey, general counsel at the Project on Government Oversight, a government watchdog group. "This leak has been fairly small."

In addition, it's not as if contractors are uniquely prone to leaks. The government is just as capable of unwanted releases of sensitive information; one needs to look no further than Bradley Manning for proof of that.

Still, Amey says he believes the case may cause the government to rethink its reliance on contractors. As the New York Times reported this week, thousands of former government employees now do intelligence work for private contractors.

The government has three key reasons why it chooses contractors, says Amey: cheaper employees (due to not having to pay for benefits like pensions), a perception that the private sector is better at innovating than the government and greater flexibility, in the sense that it's harder to fire government employees than private-sector workers.

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However, Amey considers those "myths." In one 2011 report, for example, Amey and a colleague at the Project on Government Oversight found that federal employees were less costly than contractors in 33 of 35 occupations. The government ramped up its contracting post-9/11, says Amey, and has not stepped back to examine its reliance on contractors since then.

"Unfortunately through the years, I don't think the government ever went back and said, OK, should we convert or transition some of this work into the government?" he says. "This work isn't going away in the near future. So should we be hiring government employees to come in that have the technical, electronic, and engineering skills, and computer skills necessary to handle this kind of work?"