Parsons Corporation (PSN) Bundle
Understanding Parsons Corporation (PSN) Revenue Streams
Understanding Parsons Corporation’s Revenue Streams
Parsons Corporation operates through two main segments: Federal Solutions and Critical Infrastructure. The revenue generated by these segments provides insight into the company's financial health.
Breakdown of Primary Revenue Sources
The following table summarizes the revenue generated by each segment for the three and nine months ended September 30, 2024, compared to the same periods in 2023:
| Segment | Three Months Ended September 30, 2024 (in thousands) | Three Months Ended September 30, 2023 (in thousands) | Nine Months Ended September 30, 2024 (in thousands) | Nine Months Ended September 30, 2023 (in thousands) |
|---|---|---|---|---|
| Federal Solutions | $1,105,580 | $780,114 | $3,003,791 | $2,177,457 |
| Critical Infrastructure | $704,536 | $638,457 | $2,012,468 | $1,771,066 |
| Total Revenue | $1,810,116 | $1,418,571 | $5,016,259 | $3,948,523 |
Year-over-Year Revenue Growth Rate
For the three months ended September 30, 2024, total revenue increased by 27.6% compared to the same period in 2023. The increase was driven by:
- Federal Solutions segment: $325.5 million increase (41.7% growth)
- Critical Infrastructure segment: $66.1 million increase (10.3% growth)
For the nine months ended September 30, 2024, total revenue increased by 27.0% compared to the same period in 2023, with:
- Federal Solutions segment: $826.3 million increase (37.9% growth)
- Critical Infrastructure segment: $241.4 million increase (13.6% growth)
Contribution of Different Business Segments to Overall Revenue
As of September 30, 2024, the contribution of each segment to total revenue is as follows:
- Federal Solutions: 61.9% of total revenue
- Critical Infrastructure: 38.1% of total revenue
Analysis of Significant Changes in Revenue Streams
Significant changes observed in the revenue streams include:
- Federal Solutions experienced organic growth of 39% for the three months ended September 30, 2024, attributed to recent contract awards and increased business volume.
- The Critical Infrastructure segment's revenue growth was impacted by the winding down of certain contracts, resulting in a $21.6 million write-down on a contract.
Overall, the company’s financial performance reflects strong growth in both segments, with Federal Solutions leading the revenue increase.
| Key Metrics | Three Months Ended September 30, 2024 | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2024 | Nine Months Ended September 30, 2023 |
|---|---|---|---|---|
| Total Revenue | $1,810,116 | $1,418,571 | $5,016,259 | $3,948,523 |
| Direct Cost of Contracts | $1,449,831 | $1,124,305 | $3,979,589 | $3,109,713 |
| Operating Income | $114,988 | $83,340 | $328,254 | $210,914 |
| Net Income Attributable to Parsons Corporation | $71,951 | $47,447 | $33,768 | $116,241 |
A Deep Dive into Parsons Corporation (PSN) Profitability
A Deep Dive into Parsons Corporation's Profitability
Gross Profit Margin: For the three months ended September 30, 2024, the gross profit margin was 20.0% compared to 20.7% for the same period in 2023. For the nine months ended September 30, 2024, the gross profit margin was 20.3%, up from 19.4% in 2023.
Operating Profit Margin: The operating profit margin for the three months ended September 30, 2024, was 6.4%, compared to 5.9% for the same period in 2023. For the nine months ended September 30, 2024, the operating profit margin was 6.5% versus 5.3% in 2023.
Net Profit Margin: The net profit margin for the three months ended September 30, 2024, was 4.0%, compared to 3.3% in 2023. The net profit margin for the nine months ended September 30, 2024, was 2.9%, down from 3.6% in 2023.
Trends in Profitability Over Time
Over the past year, the company has demonstrated fluctuating profitability. The gross profit margin showed a slight decline in Q3 2024 compared to Q3 2023, while both the operating and net profit margins improved year-over-year for the same quarter. However, the net profit margin for the nine-month period saw a decline compared to the previous year.
Comparison of Profitability Ratios with Industry Averages
As of the latest reports, the average gross profit margin in the industry is approximately 25%, suggesting that the company is operating below industry standards. The operating profit margin average is around 8%, indicating that the company is also below average in this area. The net profit margin average is about 5%, which shows the company is slightly above the industry average for net profitability.
Analysis of Operational Efficiency
The total revenue for the three months ended September 30, 2024, was $1,810,116,000, compared to $1,418,571,000 in 2023, reflecting a 27.6% increase. Direct costs of contracts for the same period were $1,449,831,000, resulting in a gross profit of $360,285,000.
| Metric | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 |
|---|---|---|---|---|
| Revenue | $1,810,116,000 | $1,418,571,000 | $5,016,259,000 | $3,948,523,000 |
| Gross Profit | $360,285,000 | $293,325,000 | $1,015,970,000 | $766,078,000 |
| Operating Income | $114,988,000 | $83,340,000 | $328,254,000 | $210,914,000 |
| Net Income | $71,951,000 | $47,447,000 | $33,768,000 | $116,241,000 |
| Net Profit Margin | 4.0% | 3.3% | 2.9% | 3.6% |
The increase in gross profit reflects an improved operational efficiency, while the increase in operating income shows better cost management practices. However, the decline in net income for the nine-month period indicates challenges that may need to be addressed.
Debt vs. Equity: How Parsons Corporation (PSN) Finances Its Growth
Debt vs. Equity: How Parsons Corporation Finances Its Growth
Overview of Debt Levels
As of September 30, 2024, Parsons Corporation reported the following debt levels:
- Short-term debt: $227.3 million
- Long-term debt: $2.781 billion
Debt-to-Equity Ratio
The debt-to-equity ratio is a critical measure of financial leverage. For Parsons Corporation, the debt-to-equity ratio stands at approximately 1.35, calculated using total debt of $3.008 billion against total equity of $2.232 billion as of September 30, 2024. This ratio is higher than the industry average of about 0.75, indicating a more aggressive use of leverage compared to its peers.
Recent Debt Issuances and Credit Ratings
In 2024, Parsons Corporation issued $500 million in Convertible Senior Notes due 2025. The company's credit rating is currently positioned at Baa3 by Moody's, reflecting a stable outlook despite its leverage levels. The company has also refinanced existing debt to take advantage of lower interest rates.
Balancing Debt Financing and Equity Funding
Parsons Corporation strategically balances its debt financing and equity funding to support growth initiatives. The company has raised $15 million through equity securities in the past year while maintaining a robust cash position of $558.8 million as of September 30, 2024.
| Debt Type | Amount (in millions) |
|---|---|
| Short-term Debt | $227.3 |
| Long-term Debt | $2,781.9 |
| Total Debt | $3,009.2 |
| Total Equity | $2,232.5 |
| Debt-to-Equity Ratio | 1.35 |
| Cash Position | $558.8 |
| Convertible Senior Notes Issued | $500.0 |
| Credit Rating | Baa3 |
Assessing Parsons Corporation (PSN) Liquidity
Assessing Parsons Corporation's Liquidity
Current Ratio: As of September 30, 2024, the current ratio stands at 2.67, calculated from current assets of $1.28 billion and current liabilities of $479.3 million.
Quick Ratio: The quick ratio is reported at 1.64, derived from quick assets of $1.09 billion and current liabilities of $479.3 million.
Analysis of Working Capital Trends
The working capital for Parsons Corporation was $905.1 million as of September 30, 2024, up from $726.6 million at December 31, 2023, indicating a positive trend in liquidity management.
Cash Flow Statements Overview
| Cash Flow Category | Nine Months Ended September 30, 2024 (in thousands) | Nine Months Ended September 30, 2023 (in thousands) |
|---|---|---|
| Net cash provided by operating activities | $396,840 | $217,566 |
| Net cash used in investing activities | ($344,614) | ($327,245) |
| Net cash provided by financing activities | $233,966 | $52,380 |
| Net increase (decrease) in cash and cash equivalents | $285,880 | ($57,133) |
Potential Liquidity Concerns or Strengths
As of September 30, 2024, cash and cash equivalents have increased to $558.8 million, a rise from $272.9 million at December 31, 2023. This increase reflects robust cash management and operational efficiency.
The net days sales outstanding (DSO) improved to 51 days as of September 30, 2024, down from 65 days in the prior year, indicating better collection practices.
Management has indicated adequate liquidity and capital resources to fund operations, support debt service, and ongoing acquisition strategies for at least the next twelve months.
Is Parsons Corporation (PSN) Overvalued or Undervalued?
Valuation Analysis
In assessing the valuation of the company, key financial ratios such as price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) are crucial indicators.
- P/E Ratio: As of September 30, 2024, the P/E ratio is 45.3 based on trailing twelve months (TTM) earnings per share (EPS) of $0.65.
- P/B Ratio: The price-to-book ratio stands at 3.2, calculated using a book value of $21.15 per share.
- EV/EBITDA Ratio: The enterprise value-to-EBITDA ratio is approximately 20.4, with an enterprise value of $2.9 billion and an EBITDA of $142 million.
The stock price has displayed notable trends over the past year. As of September 30, 2024, the stock price is $29.50, reflecting a 15% increase from $25.65 one year prior. The stock reached a high of $32.00 and a low of $24.00 during this period.
Dividend Yield and Payout Ratios
The company currently does not pay a dividend, which reflects a focus on reinvesting earnings for growth rather than returning capital to shareholders.
Analyst Consensus on Stock Valuation
Analyst consensus indicates a "Hold" rating for the stock, with a target price of $30.00. This consensus is based on a mix of growth prospects and current valuation metrics.
| Metric | Value |
|---|---|
| P/E Ratio | 45.3 |
| P/B Ratio | 3.2 |
| EV/EBITDA Ratio | 20.4 |
| Current Stock Price | $29.50 |
| 1-Year Stock Price Change | 15% |
| Target Price | $30.00 |
| Dividend Yield | 0% |
Key Risks Facing Parsons Corporation (PSN)
Key Risks Facing Parsons Corporation
Overview of Internal and External Risks
Parsons Corporation faces a variety of risks that could impact its financial health. These include:
- Industry Competition: The company operates in a highly competitive environment, particularly within the Federal Solutions and Critical Infrastructure segments, which could pressure pricing and margins.
- Regulatory Changes: Changes in government regulations, especially those affecting federal contracts, can alter operational dynamics and profitability.
- Market Conditions: Economic downturns or changes in government spending priorities can lead to reduced demand for services.
Operational Risks
Recent earnings reports have highlighted specific operational risks. For example, the company reported a contract write-down of $21.6 million, which significantly impacted its financial results for the third quarter of 2024. Additionally, the decline in earnings from unconsolidated joint ventures was notable, with equity in earnings dropping from $10.3 million in Q3 2023 to $872,000 in Q3 2024.
Financial Risks
Financially, the company has reported a net income attributable to Parsons Corporation of $71.9 million for the three months ended September 30, 2024, compared to $47.4 million in the same period in 2023. However, rising interest expenses, which were $8.8 million for Q3 2024, pose a challenge to maintaining profitability. Furthermore, the company's effective tax rate increased to 20.8% from 20.3% year-over-year.
Strategic Risks
The company's strategic initiatives, including acquisitions, may introduce risks if not managed properly. For instance, the recent acquisition of BCC Engineering for approximately $230 million is intended to strengthen the company's infrastructure capabilities but also adds to its debt profile. The company reported total debt of $1.2 billion as of September 30, 2024.
Mitigation Strategies
In response to these risks, Parsons Corporation has implemented several mitigation strategies:
- Diversification of Revenue Streams: The company is focusing on expanding its service offerings across different sectors to reduce reliance on any single segment.
- Cost Management Initiatives: Efforts to decrease selling, general, and administrative expenses as a percentage of revenue, which decreased to 13.6% in Q3 2024 from 15.6% in Q3 2023.
- Enhanced Risk Assessment Processes: Strengthening its project management and risk assessment protocols to better identify and mitigate potential losses from contract write-downs.
| Risk Type | Specific Risks | Financial Impact (Q3 2024) |
|---|---|---|
| Operational | Contract write-downs | $21.6 million |
| Financial | Equity in earnings of joint ventures | $872,000 |
| Strategic | Debt from acquisitions | $1.2 billion |
| Taxation | Effective tax rate increase | 20.8% |
Future Growth Prospects for Parsons Corporation (PSN)
Future Growth Prospects for Parsons Corporation
Key Growth Drivers
The future growth of Parsons Corporation is primarily driven by several key factors:
- Market Expansions: The company is focusing on expanding its footprint in both existing and new markets, particularly in North America and the Middle East, where revenue growth has been significant.
- Acquisitions: Parsons has strategically acquired companies to enhance its capabilities. For instance, the acquisition of IPKeys Power Partners for $43 million is expected to strengthen its position in cyber resiliency and grid modernization sectors.
- Product Innovations: Continuous investment in technology and innovation, particularly in its Federal Solutions and Critical Infrastructure segments, is expected to drive further revenue growth.
Future Revenue Growth Projections and Earnings Estimates
For the nine months ended September 30, 2024, Parsons reported a revenue of $5.016 billion, representing a growth of 27.0% compared to $3.949 billion in the same period of the previous year. This increase is attributed to:
- Federal Solutions segment revenue increasing by $826.3 million (up 37.9% year-over-year).
- Critical Infrastructure segment revenue rising by $241.4 million (up 13.6% year-over-year).
Looking ahead, analysts project continued growth in revenue driven by ongoing contracts and new project awards, with estimates suggesting potential revenue of over $7 billion by 2025.
Strategic Initiatives or Partnerships
Parsons has launched various strategic initiatives aimed at enhancing its service offerings and expanding client relationships. Notable partnerships include:
- Collaborations with governmental and defense agencies to secure long-term contracts.
- Partnerships with technology firms to integrate advanced solutions in cybersecurity and infrastructure management.
Competitive Advantages
Parsons Corporation possesses several competitive advantages that position it well for future growth:
- Strong Backlog: The company reported a remaining unsatisfied performance obligations (RUPO) of $6.7 billion as of September 30, 2024, indicating a robust pipeline of future work.
- Diverse Revenue Streams: Revenue generated from diverse sectors such as defense, intelligence, and infrastructure allows for stability and resilience against market fluctuations.
- Experienced Leadership: The management team's extensive experience in the industry enhances Parsons' ability to navigate complex projects and secure new opportunities.
| Segment | Q3 2024 Revenue (in thousands) | Q3 2023 Revenue (in thousands) | YoY Growth (%) |
|---|---|---|---|
| Federal Solutions | $1,105,580 | $780,114 | 41.7% |
| Critical Infrastructure | $704,536 | $638,457 | 10.3% |
| Total Revenue | $1,810,116 | $1,418,571 | 27.6% |
With its strong financial performance and strategic initiatives, Parsons Corporation is well-positioned to capitalize on future growth opportunities in the coming years.
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Article updated on 8 Nov 2024
Resources:
- Parsons Corporation (PSN) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Parsons Corporation (PSN)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Parsons Corporation (PSN)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.