Investing.com -- Raymond James analysts adjusted their ratings on several U.S. government services stocks, citing uncertainty stemming from the Department of Government Efficiency (DOGE) initiative and potential disruptions in federal spending.
The reshuffle reflects concerns over "incremental uncertainty" as 2025 begins, alongside challenges in federal civil budgets and contracting.
"While 2023 and the first 11 months of 2024 were the best periods for the Government Service cohort in more than 20 years; a new administration, a provocative group of Political appointee nominations, and DOGE have significantly dented investor psyche, the trading multiples, and halted stock momentum over the last 45-days," noted Raymond (NS:RYMD) James.
Among the upgraded stocks, CACI International received an Outperform rating with a price target of $475. Analysts highlighted its "trapped value story," supported by backlog growth of 21% year-over-year and limited exposure to discretionary federal civil markets.
Similarly, Maximus (NYSE:MMS) was upgraded to Outperform with a $90 price target, benefiting from mandatory spending areas and a strong balance sheet poised for share repurchases.
Conversely, Parsons (NYSE:PSN) Corporation and L3Harris Technologies (NYSE:LHX) were downgraded to Market Perform.
PSN is said to face challenges from a decelerating backlog and high exposure to federal civil markets, while LHX’s valuation is deemed balanced, with limited upside catalysts.
V2X Inc. emerged as a bright spot, upgraded to Outperform with a $65 price target, bolstered by its "heavy DoD base largely insulated from DOGE."
Meanwhile, Amentum also received an Outperform rating, attributed to its 25% discount to peers and a diverse customer mix, including defense-heavy revenue streams.
Raymond James emphasized that while DOGE-induced disruptions may create near-term headwinds, they also offer opportunities for well-positioned names to thrive amid federal spending shifts.