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On Monday, BMO Capital Markets adjusted its outlook on First Advantage (NASDAQ:FA), a leading global provider of technology solutions for screening, verifications, safety, and compliance related to human capital. The stock, currently trading at $14.73, has experienced a significant decline of about 18% over the past week. Analyst Jeffrey Silber revised the company’s price target to $22.00 from the previous $24.00, while continuing to endorse the stock with an Outperform rating. According to InvestingPro data, the stock’s RSI suggests it’s in oversold territory.
Silber’s reassessment follows First Advantage’s fourth-quarter 2024 earnings, which fell short of market expectations due to weaker-than-anticipated seasonal hiring. The company reported revenue of $860.21 million for the last twelve months, with a gross profit margin of 47.81%. Despite this setback, First Advantage’s management expressed confidence about the early performance in 2025, citing a robust sales and pipeline start. They also anticipate hiring trends to normalize to pre-pandemic levels, although they expect base hiring to pose challenges through the middle of the year. InvestingPro analysis reveals that analysts expect sales growth in the current year, with 12 additional exclusive insights available to subscribers.
First Advantage’s initial guidance for 2025 appears promising, aligning with prior consensus estimates on the higher end, and the company’s management has increased the lower end of its synergy targets related to its acquisition of Sterling, a global leader in background and identity services.
In light of these developments, BMO Capital has recalibrated its estimates and target price for First Advantage. The revised target reflects the challenges the company faces in the near term, balanced by the positive outlook for recovery and growth as the year progresses. The Outperform rating suggests that BMO Capital Markets still sees potential in First Advantage’s stock despite the recent adjustment in expectations.
In other recent news, First Advantage Corporation reported fourth-quarter earnings that did not meet analyst expectations, with adjusted earnings per share of $0.18 compared to the consensus estimate of $0.23. Revenue for the quarter was $307.1 million, slightly above expectations of $305.59 million, marking a 51.6% increase year-over-year. However, the company’s guidance for fiscal year 2025 also fell short, projecting adjusted earnings per share between $0.86 and $1.03, below the $0.98 consensus, and revenue between $1.5 billion and $1.6 billion, also below the expected $1.57 billion.
Analysts from BMO Capital Markets and Stifel have adjusted their outlooks for First Advantage following these results. BMO lowered its price target from $24 to $22 while maintaining an Outperform rating, citing weaker-than-expected seasonal hiring patterns. Stifel also reduced its price target to $20 from $21 but maintained a Buy rating, noting signs of stabilization in the hiring cycle despite ongoing challenges. Both firms acknowledged the company’s strategic initiatives, including the integration of Sterling, which is expected to create additional value.
First Advantage’s management remains optimistic about early 2025 sales and pipeline development, although they anticipate base hiring challenges through mid-year. The company has increased its synergy targets related to the Sterling acquisition, aiming for $60 million to $70 million in cost synergies. Despite the current headwinds, analysts from Stifel expect a potential rebound in hiring trends, which could lead to positive revisions in earnings estimates and valuation multiples.
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