Under the Radar Name
I wanted to get a quick note out on a company that I have had written on my desk for the last few weeks to revisit & I finally had some time last night after I published the recap to take a deeper look, so wanted to get out a brief individual post on the name as I felt like the name was offering an attractive opportunity both on a fundamental & technical case at the moment.
Let’s jump right into it.
For starters, what is the company?
Parsons Corporation was founded in 1944 by engineer Ralph M. Parsons. Originally established in Pasadena, California, the company started as an engineering and construction firm known for taking on complex and technologically advanced projects. From its early days, Parsons quickly gained a reputation for its innovative approaches and comprehensive solutions in both engineering and construction.
The company's early projects were heavily focused on infrastructure and aerospace, including critical work during the Cold War era. Parsons played a significant role in constructing facilities for missile and rocket programs, which marked its initial foray into the defense sector. This foundation laid the groundwork for its expansion into defense and intelligence services.
Over the decades, Parsons expanded its offerings to include technology-driven solutions in cybersecurity, intelligence, and critical infrastructure, evolving into a major player in these sectors. The company's growth was characterized by strategic acquisitions and global expansion, allowing it to diversify its portfolio and enhance its technological capabilities.
Today, Parsons is recognized for its broad range of services that include digital solutions, advanced engineering, and security services across various sectors such as defense, infrastructure, and space. Its commitment to innovation continues to drive its success, making it a key contractor for government agencies and commercial enterprises seeking reliable and advanced engineering solutions.
What exactly does Parsons do ?
Parsons Corporation is a technology-focused defense, intelligence, security, and infrastructure engineering firm headquartered in Centreville, Virginia. The company provides a wide range of services and solutions primarily to government agencies, including defense and intelligence services in the United States and internationally.
Here are some key aspects of Parsons:
- Defense and Intelligence: Parsons offers advanced technology and cybersecurity solutions, including missile defense, command and control systems, and critical infrastructure protection for military and intelligence communities.
- Critical Infrastructure: The company engages in designing, constructing, and managing infrastructure projects like bridges, roads, airports, and water treatment facilities. It emphasizes incorporating digital solutions to enhance the efficiency and sustainability of these projects.
- Technology Integration: A significant focus for Parsons is integrating cutting-edge technologies such as artificial intelligence, machine learning, and IoT into its projects, aiming to create smarter and more resilient systems and structures.
- Government and Commercial Services: While government contracts form the backbone of its business, Parsons also serves commercial sectors, leveraging its technological expertise to meet the needs of private sector clients.
In looking at Parsons, a reasonable comp seemed to be Palantir given they’re both within a similar space. Parsons and Palantir are both prominent companies involved in technology and government services, but they do focus on different aspects of these markets and have distinct business models:
Core Focus and Services:
- Parsons is primarily an engineering, construction, and technology firm that provides cybersecurity, intelligence, and critical infrastructure services. It engages in physical and digital infrastructure projects, including transportation, environmental remediation, and space defense.
- Palantir specializes in big data analytics, providing software platforms that help organizations integrate, manage, secure, and analyze large amounts of data. Its platforms, like Palantir Gotham and Foundry, are widely used in sectors such as government intelligence, healthcare, finance, and more to facilitate data-driven decision making.
Client Base:
- Parsons has a strong base in government contracts, especially in defense and infrastructure, but also serves commercial sectors. Its projects often involve large-scale construction and systems engineering.
- Palantir also has significant government contracts but places a heavier emphasis on software solutions across both government and commercial sectors. Its work typically revolves around software and data rather than physical infrastructure.
Technological Integration:
- Parsons incorporates technology into its engineering and infrastructure projects, aiming to enhance physical systems with digital solutions, which includes cybersecurity and space technology services.
- Palantir is fundamentally a software company that leverages advanced algorithms and data analytics to offer solutions that can predict and influence outcomes by analyzing large datasets.
Revenue Streams and Contract Types:
- Parsons derives its revenue from project-based contracts, which can include engineering, construction management, and technical services.
- Palantir generates revenue primarily through software licenses and subscriptions, making its business model more centered on recurring revenue from data analytics services.
A look at fundamentals:
I ended up comping Parsons to Palantir below:
In looking below, right off the bat, you can pretty much see PSN is beating PLTR in every way possible. PSN trades at a 25.2 P/E NTM whereas PLTR trades at a 62.7X P/E NTM. Moving along, PSN trades at 1.4X EV/S NTM whereas PLTR trades at 15.5X EV/S NTM. Parsons pretty much has 10X FCF per share comparatively to Palantir. And lastly, Parsons is doing over double the revenues that Palantir is doing yet has just under a 40B less market cap trading just over a 8B market cap whereas Palantir trades at a 47B MC.
Palantir does have a bit better margins, but Parsons is essentially cheaper on every metric / continuing to accelerate growth & earnings / much smaller market cap comparatively to Palantir leaving more room for upside & is also not diluting shareholders. Palantir does have more govt. Contracts, but that’s not to say Parsons isn’t getting a piece of the pie either as they just received a 1B contract a couple months back.
Bull / Bear cases:
Bull Case for Parsons:
- Government Contracts and Stability: Parsons has a strong foundation of long-term government contracts, especially in defense, intelligence, and critical infrastructure. These contracts often provide a steady revenue stream and financial stability, as they are less susceptible to economic fluctuations.
- Technological Edge and Innovation: The company is at the forefront of integrating advanced technologies in cybersecurity, space defense, and critical infrastructure. This technological edge positions Parsons well for future government and commercial projects, especially as modern warfare and infrastructure increasingly rely on high-tech solutions.
- Growth in Infrastructure and Space: Parsons' involvement in significant infrastructure projects, such as the revitalization of Puerto Rico’s power system and contracts with the U.S. Space Force, indicate potential growth areas. As the U.S. and other countries continue to invest in infrastructure and space exploration, Parsons is well-positioned to benefit from these investments.
Bear Case for Parsons:
- Dependence on Government Spending: While the reliance on government contracts provides stability, it also poses a risk. Changes in government priorities, budget cuts, or shifts in policy can impact Parsons' project pipeline and revenue. The firm's financial performance is susceptible to the budgetary and strategic whims of the government, which can vary with each administration.
- Competitive Bidding and Contract Risks: The competitive nature of government contracting means Parsons must continuously vie against other firms for contracts. There's also the risk of contract cancellations or non-renewals, which could affect revenue forecasts and company growth.
- Geopolitical and Regulatory Risks: Parsons operates globally, exposing it to geopolitical risks that could impact operations. Furthermore, strict compliance with government regulations and the need for security clearances add layers of complexity that could hinder operational flexibility and increase costs.
Lastly, a look at technicals:
Ever since the gap up off prior earnings, it has since consolidated and has pulled back into the 20d on the weekly which has been nice for trend / momentum as you can see below. I think these areas are offering an attractive entry both on the technical side of things along with the fundamental aspect. Going to make this a higher conviction swing & essentially have a stop around the 200d on the daily. I think Parsons is still an early story here and has good upside from these levels as long as they continue to execute. Based off technicals, a breakout of this technical setup should lead Parsons to trade near / over 100, whereas on a bit of a more medium / longer horizon, I think Parsons can trade up to the 120-130 range & they even are a likely candidate for a takeover target by one of the bigger defensive companies.
I ended up getting long the stock this morning, as again, I think the risk / reward is attractive on both a fundamental and technical aspect.
If you enjoyed this quick note, likes are always appreciated. Hope you all enjoy the remainder of the day / week.
~ Eliant
So a couple of good hedge fund friends are following $ROAD closely , one mentioned a swing trade w 50-100pp upside. Wdyt? Have you looked at the name ?
Actually it was Lake Cornelia research that has been a fan