Parsons Corporation’s PSN stock has gained 49.2% over the past year, underperforming the 54.6% rally of the industry but outperforming 29.1% growth of the Zacks S&P 500 composite.

PSN’s performance is higher than that of its industry peers, Cardlytics, Inc. CDLX and GigaCloud Technology Inc. GCT. CDLX has declined 58.7%, while GCT has risen marginally.

One-Year Price Performance

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As of the last trading session, the PSN stock closed at $98.3, 22.7% down from the 52-week high of $114.7.

Investors might be inclined to buy Parsons’ stock, given the rise over the past year. However, the question of whether to buy the stock or not needs to be answered. Let us delve deeper.

Buyouts Aid PSN’s Customer Base & Market Expansion

In the third quarter of 2024, Parsons closed its BlackSignal Technology acquisition deal for $204 million. The acquired company is the next-gen digital signal processing, electronic warfare and cyber security provider built to counter near-pure threats.

BlackSignal expands PSN’s customer base across the Department of Defense and Intelligence community, and strengthens its position within offensive Cyber operations and electronic warfare while adding capabilities in the counter-space radio frequency domain. The buyout provides a strong workforce, 90% IP-enabled offerings, 67% directive sole source work and an expanded customer base set, allowing swift revenue synergies. 

Parsons entered a definitive agreement to acquire BCC Engineering in an all-cash transaction of $230 million. This buyout will strengthen PSN’s position as an infrastructure leader while expanding its reach in the Southeastern region of the United States. BCC will increase PSN’s presence and resources working with the Georgia Department of Transportation.

The company uses its strong balance sheet position. It provides the company the ability to complete the buyouts that provide technological differentiation and drive the top line and result in margin expansion.

Parsons’ Raised Revenue Projection Looks Optimistic

PSN has been raising its 2024 revenue guidance for the past three quarters. In the first quarter of 2024, revenues for the year were expected to be $6.1-$6.4 billion, increasing from the preceding quarter’s view of $5.8-$6 billion. The 2024 revenue guidance in the second quarter was raised to $6.35-$6.55 billion, and PSN hiked it to $6.6-$6.8 billion in the third quarter. The company’s strong operating performance led management to raise its top-line guidance. We anticipate that the rise in Parsons’ stock price in the past year has been led by a consistently raised revenue outlook, which can boost investor confidence.

PSN’s Stock Looks Undervalued

The Parsons stock looks cheap and appealing to investors. It is priced at 26 times forward 12-month earnings per share, which is lower than the industry’s average of 41.6 times.

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When looking at the trailing 12-month EV-to-EBITDA ratio, PSN is trading at 15.4 times, far below the industry’s average of 88.5 times.

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Parsons’ Robust Returns on Capital

Return on equity (ROE), a measure of profitability, reflects the degree to which a company uses its shareholder investments to generate earnings. PSN’s trailing 12-month ROE is 12.7% greater than the industry’s average of 3.4%.

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PSN’s Optimistic Top & Bottom Line Estimates

The Zacks Consensus Estimate for the company’s 2024 revenues is pegged at $6.8 billion, indicating 24.2% growth from the year-ago reported level. For 2025, the top line is pegged at $7.2 billion, suggesting a 6.8% year-over-year increase.

The consensus estimate for 2024 earnings is pegged at $3.4 per share, suggesting a 40.7% increase from the prior year's actual. For 2025, the bottom line is pinned at $3.8 per share, hinting at an 11.9% year-over-year rise.

Buy Parsons Now

PSN’s inclination toward acquiring companies that expand its customer base and markets while maintaining a healthy balance sheet position drives its top line and margins. The increases in its top-line guidance in the past three quarters are expected to have hiked PSN’s stock price, boosting investor morale.
The stock looks inexpensive, provides robust capital returns, and carries healthy top and bottom-line expectations.

We believe that the aforementioned factors make it a deserving candidate for your long-term portfolio. Hence, investors should buy the stock right now.

PSN sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

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