On Thursday, Stifel, a financial services firm, increased its price target on shares of First Advantage (NASDAQ:FA) to $21 from $16 while reaffirming a Buy rating on the stock. The revision reflects Stifel's newly introduced pro forma deal model for First Advantage's impending acquisition of STER.
The firm's analysis suggests a balanced approach to the assumptions, aiming to be conservative yet reasonable. The base case projects a 2% dilution to First Advantage's standalone earnings in 2024, with an expectation of low-to-mid-single-digit earnings per share accretion from 2025 to 2028.
Stifel's model also acknowledges the potential for upside from additional cost and revenue synergies, as well as the possibility of interest rates declining, although rate cuts have not been included in the estimates. Conversely, there are risks such as greater client losses than anticipated due to the acquisition and the potential for synergies to be realized slower or at higher costs than expected.
The new $21 price target is based on an 11x enterprise value to estimated 2025 EBITDA multiple applied to the pro forma 2025 combined EBITDA estimate. This valuation adjustment by Stifel underscores the firm's outlook on the financial impact of First Advantage's strategic move to acquire STER and its future earnings potential.
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