Catalyst Watch – Parsons (PSN)
On October 1st during our Conversations recording, we would call out a very specific catalyst as it pertained to Parsons (PSN). See the snapshot below:
Fast forward just over a month later on November 5th when the company reported its Q3 earnings. During the conference call, CEO Carey Smith would say:
“In addition, our unique and synergistic critical infrastructure and Federal Solutions portfolio which consists of 6 growing, profitable and enduring end markets is expected to drive mid-single digit or better organic revenue growth, excluding the confidential contract for the foreseeable future. This growth outlook excludes the FAA brand-new air traffic control system contract.”
“Regarding this opportunity, we believe a decision is imminent, and we felt we offered a compelling bid given we’re the #1 program manager in the world offered a transformational approach strategically partnered with IBM, have strong past performance and assembled a team that is vendor-agnostic and understands the FAA.”
Then, during the Q&A, Baird analyst Andrew Wittmann would follow up on the FAA decision due to the government shutdown:
“I wanted to just drill in and get a little bit more from you on FAA. Obviously, the government has shutdown. This one notionally had a October 31 award target date. Obviously, the government controls that and can slide. But I was just wondering, you said imminence on the call. Like are the contracting personnel at the FAA on staff? Is there a dialogue happening there? What can you tell us a little bit more detail on that one in particular?”
CEO Carey Smith would respond by saying. “Yes. Fortunately, the FAA brand-new air traffic control system is not impacted by the shutdown and an award is imminent. This program, again, is going to use the $12.5 billion of funding that was awarded under the reconciliation bill. This is a critically important program to our country.”
In their post earnings note, Stifel analyst Jonathan Siegmann would write that while PSN isn’t quantifying how this program might scale, they note the wall of budget resources being thrown at the new modernization effort. “We size the FAA award to PSN at around the level their DoS confidential contract (~$1b/year), which likely ramps quickly and earns a slightly lower-than-average margin (given its lower risk cost-plus revenue). While there is risk to the stock if PSN is not selected for the FAA contract, we share management’s confidence that the PSN/IBM team is the front-runner. We remain buyers of PSN ahead of this potential franchise award announcement.”
