Will Cyberwarfare Demand Boost the Parsons Share Price?

The Parsons share price has gone from strength to strength this year, recording an all-time high last week. As governments continue to invest in securing and protecting their infrastructure, PSN stock could rise still further.

Parsons [PSN] is a Virginia-based company that provides technology solutions to infrastructure and national security markets.

The company’s business is split into two main areas: federal solutions and critical infrastructure. The former is focused on areas such as cybersecurity, missile defence and weapons system resilience, and the latter on digital solutions for aviation, rail and bridges.

This spotlight on PSN stock will highlight the role of the company in the US infrastructure and military spheres. It will discuss how government contracts are a key driver of growth, but will also highlight that this could potentially impact future growth.

Parsons Strengthens Operations 

At the end of July, Parsons announced the acquisition of BlackSignal Technologies. According to the company’s website, BlackSignal is an expert in “delivering advanced signal processing and cyber capabilities to counter… adversaries of the US”.

The $200m deal is part of Parson’s strategy to pursue targets that boast revenue growth and adjusted EBITDA of at least 10%. BlackSignal is expected to contribute $95m to Parson’s revenue in FY 2025.

Parsons Chair, President and CEO Carey Smith was questioned about synergy from the BlackSignal deal on the company’s Q2 earnings call. “It strengthens our position in key markets, offensive cyber operations and electronic warfare… And as with all our acquisitions, we really look for them to drive us up the value chain,” she said.

The hope is that a couple more deals will be completed by the end of the year, Smith added.

Acquisitions Bolster PSN Stock 

The BlackSignal news bolstered PSN stock, which has gained 18.2% in the month through 13 August. The share price is up 48.2% since the start of 2024 and 69.8% in the past year.

For comparison, the infrastructure consulting firm AECOM’s [ACM] share price is up 3.2% since the start of 2024 and up 7.9% in the past year as of 13 August. Engineering consulting firm Jacobs’ [J] share price is up 10.6% and 5.2% in the respective periods.

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Parsons Reports Record Revenue and Margins

Parsons reported positive quarterly results for Q2 thanks to rising demand for military and security technology.

Revenue rose 23% year-on-year to a record $1.7bn. The company’s crucial infrastructure segment brought in $682m, up 15%, while its federal solution segment brought in $989m, up 30%.

Net income was a record $69m, up 60% from Q2 2023 and adjusted EBITDA increased 27% to a record $150m. Cash flow rose from $23m a year ago to $161m; the company highlighted a couple of big contract wins in the quarter.

Jacobs attributed strong Q3 2024 results reported last week to “a growing pipeline in transport and energy and power supported by ongoing government stimulus”. AECOM sees long-term headwinds from increased investment in infrastructure in the UK and across the Middle East.

Parsons has a healthy price-to-sales ratio. Factoring in the robust revenue growth that is forecast over the next couple of years, PSN stock appears fair value in comparison to AECOM and Jacobs.

PSN Stock: The Investment Case 

The Bull Case for Parsons 

Parsons has a history of reporting record revenue and earnings growth. As more governments look to secure their infrastructure and systems against cyberattacks, the company could continue to do so.

With acquisitions like BlackSignal boosting Parsons’ artificial intelligence capabilities and giving its solutions an edge, the company could be well placed to win more contracts.

Away from military and defence, commercial space exploration is another area from which Parsons could be poised to benefit. Earlier this year, the Office of Space Commerce selected the company to help develop its civil space traffic coordination system.

The Bear Case for Parsons 

A glaring issue is the fact that a majority of Parsons’ Q2 revenue came from its federal segment. While government contracts offer stability and can be lucrative, Parsons could leave itself exposed if governments cut back on defence and security spending.

If contracts were not to be renewed, this could impact future revenue growth. Moreover, Parsons will face increasing competition for contracts that are on offer.

There is also the risk that, by being a government contractor, Parsons itself becomes the target of a cyberattack. This would likely not be a long-term issue, but could be a short-term headwind if disruption impacted its ability to do business.

Conclusion 

As the risk grows larger of hackers from China, North Korea and Iran targeting critical infrastructure in the US, UK and EU, Parsons’ services are expected to be in demand.

The near-term investment thesis for PSN stock is intact, but the long-term question is whether the company will be able to maintain its growth and keep winning government contracts.

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