Morgan Stanley Lifts Parsons’ Base Price Target to $40, Bull Case Forecast to $51

Morgan Stanley raised their base stock price forecast on Parsons to $40 from $38 and a bull case scenario projection of $51.

Last month, the Centreville, Virginia-based company said quarterly earnings came in at $0.34 per share, beating consensus estimates of $0.28 per share. But Parsons’ revenues fell to $874.7 million, down from $970.99 million seen in that same quarter a year ago.

Parsons has signed an deal to acquire digital security firm BlackHorse Solutions in an ‘accretive deal’ worth $203 million.

“Incorporation of 1Q FY21 earnings and consideration of updated guidance in our forecast. We are modeling revenue of ~$3.95bn (~$3.96bn prior and $3.85 – 4.05bn guidance), ~$368mn adjusted EBITDA ($366mn prior and $350 – 375mn guidance), and cash flow from operations of ~$296mn ($300mn prior and $280 – 310mn guidance). We have not factored in the acquisition of BlackHorse Solutions,” noted Matthew Sharpe, equity analyst at Morgan Stanley.

“We are raising our PT to $40 (from $38) on a ~12.5x CY21 EV/EBITDA multiple (from ~11.25x) and ~$348mn of adjusted EBITDA (from ~$346mn).”

Parsons shares rose over 9% so far this year.

Fifteen analysts who offered stock ratings for Parsons in the last three months forecast the average price in 12 months at $188.93 with a high forecast of $225.00 and a low forecast of $163.00.

The average price target represents a -2.94% from the last price of $194.65. Of those 15 equity analysts, six rated “Buy”, seven rated “Hold” while two rated “Sell”, according to Tipranks.

“We see a number of offsetting aspects to the PSN narrative leading us to an EW stance. The strategy to pivot toward the FS business is compelling, on robust topline growth from acquisition synergies. Additionally, we believe PSN will be a healthy cash generator which should allow for an acceleration in the pivot through M&A,” Morgan Stanley’s Sharpe added.

“However, offsetting this are a management team that somewhat lacks a public track record and a Critical Infrastructure segment that will experience headwinds as it winds down some lesser attractive businesses.”

Other equity analysts also recently updated their stock outlook. Jefferies raised the target price to $49 from $46. Truist Securities lifted the target price to $48 from $44.

Stifel increased the target price to $70 from $45. Cowen and company lowered the target price to $33 from $40.