Parsons Stock: Hold Rating Amid Contract Uncertainty and Segment Risks

In a report released today, Gautam Khanna from TD Cowen maintained a Hold rating on Parsons (PSN – Research Report), with a price target of $65.00.

Gautam Khanna has given his Hold rating due to a combination of factors impacting Parsons’ stock. One of the primary concerns is the uncertainty surrounding the ‘Confidential’ contract, which is currently operating below expectations due to external factors. Although the company anticipates clarity on this matter soon, the potential impact on sales remains a point of caution. Additionally, while the company’s Critical Infrastructure segment showed strong performance in the first quarter, there is a conservative outlook for the full year, which suggests some uncertainty about maintaining this momentum.
Furthermore, the Federal Solutions segment has shown signs of risk, with a reduced margin guidance for the year, which could lead to potential shortfalls. The company’s sales guidance also indicates a heavier reliance on the second half of the year, which introduces additional risk. Despite these challenges, Parsons has a substantial backlog and outstanding bids, which could provide future growth opportunities. However, the current valuation premium compared to other preferred stocks in the sector, such as CACI, suggests a cautious approach is warranted, leading to the Hold rating.