Parsons (PSN)

Infrastructure and defense services provider Parsons (NYSE:PSN) missed Wall Street’s revenue expectations in Q3 CY2025, with sales falling 10.4% year on year to $1.62 billion. The company’s full-year revenue guidance of $6.45 billion at the midpoint came in 1.9% below analysts’ estimates. Its non-GAAP profit of $0.86 per share was 14.5% above analysts’ consensus estimates.

Company Overview

Delivering aerospace technology during the Cold War-era, Parsons (NYSE:PSN) offers engineering, construction, and cybersecurity solutions for the infrastructure and defense sectors.

Defense contractors typically require technical expertise and government clearance. Companies in this sector can also enjoy long-term contracts with government bodies, leading to more predictable revenues. Combined, these factors create high barriers to entry and can lead to limited competition. Lately, geopolitical tensions–whether it be Russia’s invasion of Ukraine or China’s aggression towards Taiwan–highlight the need for defense spending. On the other hand, demand for these products can ebb and flow with defense budgets and even who is president, as different administrations can have vastly different ideas of how to allocate federal funds.

Competitors in the Government and commercial technology industry include Jacobs Solutions (NYSE:J), KBR (NYSE:KBR), and SAIC (NYSE:SAIC).

A company’s long-term performance is an indicator of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Luckily, Parsons’s sales grew at a solid 10.2% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers, a helpful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Parsons’s annualized revenue growth of 13.4% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

We can dig further into the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Parsons’s backlog reached $8.83 billion in the latest quarter and averaged 2.2% year-on-year growth over the last two years. Because this number is lower than its revenue growth, we can see the company fulfilled orders at a faster rate than it added new orders to the backlog. This implies Parsons was operating efficiently but raises questions about the health of its sales pipeline.

This quarter, Parsons missed Wall Street’s estimates and reported a rather uninspiring 10.4% year-on-year revenue decline, generating $1.62 billion of revenue.

Looking ahead, sell-side analysts expect revenue to grow 5.7% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and implies its products and services will face some demand challenges. At least the company is tracking well in other measures of financial health.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Parsons was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.4% was weak for an industrials business.

On the plus side, Parsons’s operating margin rose by 2.9 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q3, Parsons generated an operating margin profit margin of 6.7%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Parsons’s solid 11.3% annual EPS growth over the last five years aligns with its revenue performance. This tells us its incremental sales were profitable.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

Parsons’s two-year annual EPS growth of 19% was fantastic and topped its 13.4% two-year revenue growth.

Diving into Parsons’s quality of earnings can give us a better understanding of its performance. A two-year view shows that Parsons has repurchased its stock, shrinking its share count by 5.5%. This tells us its EPS outperformed its revenue not because of increased operational efficiency but financial engineering, as buybacks boost per share earnings.

In Q3, Parsons reported adjusted EPS of $0.86, down from $0.95 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects Parsons’s full-year EPS of $3.20 to grow 8.9%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Parsons has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 6.5% over the last five years, slightly better than the broader industrials sector.

Taking a step back, we can see that Parsons’s margin dropped by 1.6 percentage points during that time. We’re willing to live with its performance for now but hope its cash conversion can rise soon. If its declines continue, it could signal increasing investment needs and capital intensity.

Parsons’s free cash flow clocked in at $149.7 million in Q3, equivalent to a 9.2% margin. The company’s cash profitability regressed as it was 6.6 percentage points lower than in the same quarter last year, but it’s still above its five-year average. We wouldn’t read too much into this quarter’s decline because investment needs can be seasonal, causing short-term swings. Long-term trends trump temporary fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Parsons has shown solid business quality lately, it historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.8%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, Parsons’s has increased over the last few years. its rising ROIC is a good sign and could suggest its competitive advantage or profitable growth opportunities are expanding.

Parsons reported $422.6 million of cash and $1.38 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $602.7 million of EBITDA over the last 12 months, we view Parsons’s 1.6× net-debt-to-EBITDA ratio as safe. We also see its $20.23 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Parsons beat analysts’ EBITDA expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its revenue missed and its backlog fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 9.1% to $72.27 immediately following the results.

Updated: December 3, 2025 at 10:15 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Parsons.

There are things to like about Parsons. First off, its revenue growth was solid over the last five years. And while its backlog growth has disappointed, its expanding operating margin shows the business has become more efficient. On top of that, its solid EPS growth over the last five years shows its profits are trickling down to shareholders.

Parsons’s P/E ratio based on the next 12 months is 24.5x. Looking at the industrials landscape right now, Parsons trades at a pretty interesting price. If you’re a fan of the business and management team, now is a good time to scoop up some shares.

Wall Street analysts have a consensus one-year price target of $94.90 on the company (compared to the current share price of $82.90), implying they see 14.5% upside in buying Parsons in the short term.