What Happened?
Shares of infrastructure and defense services provider Parsons (NYSE:PSN) fell 9.1% in the afternoon session after peer, CACI, reported fourth-quarter earnings results, with markets increasingly worried that new cost-cutting initiatives by the US government would affect Defense contracts.
Although CACI reported a strong quarter with revenue, EBITDA, EPS ahead of Wall Street's expectations as well as a statement that they're well on their way to meet the three-year financial targets unveiled during the November 2024 Investor Day, the market became fearful of the impact of DOGE during the earnings call Q&A session.
DOGE or the Dept of Government Efficiency was recently established by President Donald Trump as a result of his frustration with government bloat and inefficiency. A primary objective is to streamline federal operations and significantly reduce government spending, with a target of cutting up to $2 trillion over the next decade. For example, DOGE plans to reassess and renegotiate existing Department of Defense contracts to achieve cost savings, and this could lead to reduced contract values or more stringent terms for defense contractors such as CACI and others.
Additionally, there will likely be efforts to reduce the size of the federal workforce, which may result in fewer government personnel overseeing and managing defense contracts. This could slow down procurement processes and delay project approvals, impacting contractors' operations. Defense contractor stocks have seen multiple compression since President Trump first introduced DOGE, and yesterday's CACI earnings call had multiple questions related to the topic that seemed to make the market more fearful that DOGE will indeed be a headwind to CACI and peers.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Parsons? Access our full analysis report here, it’s free.
What The Market Is Telling Us
Parsons’s shares are not very volatile and have only had 4 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
Parsons is down 5.2% since the beginning of the year, and at $85.82 per share, it is trading 24.3% below its 52-week high of $113.31 from November 2024. Investors who bought $1,000 worth of Parsons’s shares 5 years ago would now be looking at an investment worth $2,002.
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