On Wednesday, BMO Capital initiated coverage on First Advantage (NASDAQ:FA) with an Outperform rating and set a price target of $24.00. The firm views First Advantage as a unique player in the market due to its position as the world’s largest provider of background screening products, along with identity and verification solutions.
The coverage launch by BMO Capital highlights First Advantage's dual nature, drawing parallels to both a staffing company and an information services firm. The analyst pointed out that the company's transactional revenue and its connection to the overall labor market are reminiscent of a staffing entity.
Meanwhile, its technology initiatives and margin profile align more closely with an information services provider. According to InvestingPro data, the company maintains a healthy financial position with a current ratio of 3.85, indicating strong liquidity.
First Advantage has been categorized within the Industrials Global Industry Classification Standard (GICS), where it shares space with most staffing companies. This classification reflects the analyst's perspective on the company's operational focus and market segment.
The Outperform rating suggests that BMO Capital anticipates First Advantage's stock performance to be strong relative to the market. The $24.00 price target indicates the firm's confidence in the company's potential for growth and value creation for its shareholders. Based on InvestingPro's comprehensive Fair Value analysis, the stock appears slightly undervalued at current levels. Subscribers can access over 10 additional ProTips and detailed valuation metrics in the Pro Research Report.
The initiation of coverage by BMO Capital is based on the firm’s analysis of First Advantage's market position and financial prospects. It should be noted that the price target and rating are subject to change based on future market conditions and company performance.
In other recent news, First Advantage Corporation has been experiencing steady growth following its $2.2 billion acquisition of Sterling, a move that has nearly doubled the company's market share. The merger is expected to create between $50 million and $70 million in cost synergies, according to analysts from RBC Capital Markets and Barclays (LON:BARC). Both firms have reinstated coverage on First Advantage, with RBC assigning an Outperform rating and Barclays giving an Overweight rating to the stock.
First Advantage's Q3 revenues were reported at $199.1 million and the company's 2024 guidance projects total revenues between $858 million and $918 million, with an adjusted EBITDA of $250 million to $274 million. These figures were disclosed during a recent earnings call, where the company emphasized its commitment to achieving synergy targets post-acquisition.
The company's "5.0 strategy" and the use of advanced technology platforms, including artificial intelligence, machine learning, and robotic process automation, were highlighted by RBC as key drivers for future growth.
Barclays also noted the company's potential to capitalize on a recovery in the hiring market, despite some risks associated with the integration of two distinct management cultures post-merger.
First Advantage is expected to continue its outperformance through new client acquisitions, estimated at over 5%, upselling around 5%, and maintaining improved attrition rates below 4%. The company also plans to reduce net leverage to around three times by the end of 2026, as part of its financial strategy post-merger.
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