Technology-focused defense company Parsons Corp (NYSE: PSN) went public in early May at $27 per share and is now trading north of Wells Fargo's price target.
Ed Caso downgraded Parsons from Outperform to Market Perform with an unchanged $36 price target.
Wells Fargo's positive outlook on Parsons' management team, market positioning and expectations for outperformance remain unchanged, Caso said in the Wednesday downgrade note. (See his track record here.)
The stock is trading at sell-side firm's $36 price target as of Wednesday, and a revision in the rating is justified for valuation reasons, the analyst said.
Shares of Parsons are trading at 12 times 2020 estimated EV/EBITDA, which is in-line with government service providers that trade at 11.5 to 12.9 times, Caso said.
Jacobs Engineering Group Inc (NYSE: JEC) boasts a similar business model — a combination of infrastructure and government services — and trades at 11.5 times 2020 estimates, he said.
Taking a closer look at the business segments shows half of the company's revenue comes from
supporting critical infrastructure — a business with low-to-no-growth and lower margins, the analyst said.
Parsons also has slightly lower government services EBITDA margins, according to Wells Fargo.
Parsons shares were up 0.27% at $36.83 at the time of publication Wednesday.
The Parsons IPO: What You Need To Know
Morgan Stanley Initiates Coverage On Government Services Stocks
Photo courtesy of Parsons.
Latest Ratings for PSN
|Jun 2019||Downgrades||Outperform||Market Perform|
|Jun 2019||Initiates Coverage On||Buy|
|Jun 2019||Initiates Coverage On||Outperform|
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