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On Wednesday, Benchmark analyst Josh Sullivan adjusted the price target for Parsons Corp . (NYSE: NYSE:PSN) to $90, a decrease from the previous target of $130, while continuing to recommend the stock as a Buy. The stock, currently trading near its 52-week low of $57.22, appears undervalued according to InvestingPro analysis, which identifies multiple positive indicators despite a challenging 36% decline over the past six months. Sullivan highlighted that Parsons’ portfolio is less affected by Department of Defense (DOGE) maneuvers compared to its competitors, and the company has several potential catalysts on the horizon. These include developments in international relations and infrastructure projects, such as the Ukraine/Russia/Gaza/LA Rebuilds, Saudi/Trump Relations, Sentinel Rebid, DOGE opening new bids, Iron Dome, and ongoing mergers and acquisitions.
The reassessment follows Parsons’ fourth-quarter 2024 earnings, where the company reported booking only a part of a $242 million classified program. This was due to a pause in a separate but related program conducted by other entities. Sullivan pointed out that Parsons has a large and diverse contract portfolio, with 3,400 contracts amounting to an approximately $12 billion backlog, 44% of which are non-federal. This robust pipeline supports the company’s impressive 24% year-over-year revenue growth and maintains a healthy gross profit margin of nearly 21%. For deeper insights into Parsons’ financial health and growth prospects, InvestingPro subscribers have access to over 10 additional exclusive ProTips and comprehensive analysis. The company has minimal exposure to DOGE targets at major federal agencies, suggesting that the earnings miss is not indicative of broader DOGE-related issues.
Furthermore, Parsons closed out its last low-margin legacy pass-through programs in the fourth quarter of 2024, which resulted in a $29 million EBITDA reduction. Despite the negative impact, this closure is expected to lead to higher margins in the future. Sullivan also noted that Parsons is well-positioned to benefit from peace and reconstruction efforts in Ukraine and Gaza, similar to its significant role in the rebuild of Iraq.
In conclusion, while the price target has been reduced to reflect current industry multiples amid peak DOGE concerns, Sullivan believes that Parsons stands out within its peer group. The company has several upcoming catalysts, limited DOGE exposure, and is likely to be a long-term beneficiary of an industry shift towards efficiency. With a moderate debt-to-equity ratio of 0.59 and a PEG ratio of 0.55, Parsons maintains a strong financial position while trading at attractive valuations. Discover more detailed analysis and forward-looking metrics in the comprehensive Pro Research Report, available exclusively on InvestingPro.
In other recent news, Parsons Corporation reported its fourth-quarter 2024 earnings, which fell short of analyst expectations. The company announced an earnings per share of $0.78, missing the anticipated $0.91, while revenue came in at $1.73 billion against a forecast of $1.76 billion. Despite the disappointing quarterly results, Parsons achieved record full-year revenue exceeding $6.7 billion and significant growth in adjusted EBITDA. Analyst firms have responded to these developments with mixed adjustments to their outlook on Parsons. TD Cowen downgraded the stock from Buy to Hold, slashing the price target from $105 to $56 due to concerns over future growth. Conversely, Jefferies and Truist Securities maintained Buy ratings, albeit with reduced price targets of $85, citing cautious optimism about future growth prospects. KeyBanc also lowered its price target to $76 but kept an Overweight rating, suggesting potential for recovery as the company navigates current challenges. These recent developments reflect varied perspectives on Parsons’ future trajectory amidst the latest financial disclosures and market conditions.
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