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On Thursday, Baird analysts adjusted their stance on Parsons Corporation (NYSE:PSN), downgrading the stock from Outperform to Neutral and reducing the price target to $69 from the previous $72. The move comes as the stock has declined nearly 38.5% over the past six months, according to InvestingPro data, which also reveals that three analysts have recently revised their earnings expectations downward for the upcoming period. The revision comes as the firm evaluates the balanced risk/reward ratio following Parsons’ recent market performance. The analysts pointed to a high binary risk associated with the company’s significant annual revenue contract worth approximately $725 million, which is currently under review by the Trump administration and set to expire in February. For the $7.15 billion market cap company, this contract represents a substantial portion of its business, though InvestingPro’s analysis indicates the company maintains a GOOD overall financial health score.
The contract, serving a confidential humanitarian customer, presents a potential overhang for Parsons’ Federal business segment. While Baird remains positive about Parsons’ competitive edge and performance in both its Federal and Infrastructure segments, they note that the company’s valuation is already higher than that of its Federal sector peers and aligns with or surpasses that of its Infrastructure counterparts. This assessment aligns with current metrics showing a P/E ratio of 29.31x, though InvestingPro’s Fair Value analysis suggests the stock may still have room for upside. Discover detailed valuation metrics and 12+ additional ProTips with an InvestingPro subscription.
Baird’s analysts also highlighted that Parsons’ guidance might face downward risks stemming from the Federal segment, although there could be upward potential in Critical Infrastructure (CI). However, they suggest that the overall tilt is negative, indicating potential concerns over the company’s future revenue and earnings projections.
This downgrade and price target adjustment reflect Baird’s cautious outlook on Parsons Corporation amidst the uncertainty surrounding the key revenue-generating contract and its impact on the company’s financial health. Parsons’ shares will continue to be observed by investors as the situation with the government contract unfolds.
In other recent news, Parsons Corporation reported its Q1 2025 earnings, showing a mixed financial performance. The company exceeded earnings per share (EPS) expectations, posting $0.78 compared to the anticipated $0.74. However, Parsons fell short on revenue forecasts, achieving $1.55 billion against the expected $1.62 billion. The company also reported a record total backlog of $9.1 billion, with 69% of it funded, indicating robust future demand. Notably, Parsons maintains a positive outlook for 2025, projecting total revenue between $7.0 billion and $7.5 billion and planning to pursue 2-3 acquisitions this year. Analysts have not provided any upgrades or downgrades for the company’s stock at this time. Additionally, Parsons’ strategic focus remains on advanced technology integration and expanding environmental remediation capabilities. The company recently completed the acquisition of TRS Group, enhancing its environmental remediation offerings.
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