By Steve Gelsi
Stifel on Friday resumed coverage of eight government services stocks and initiated coverage of KBR Inc. as the sector faces increased demand from an elevated threat environment.
“New frontiers such as space and cyber are highlighting the changing dynamics within the military as well as across cabinet agencies as the war between Russia and Ukraine puts a spotlight on defense capabilities and general agency resilience,” analyst Bert W. Sabin said in a research note. “This push started before the conflict but has been catalyzed as a result, in our view.”
Stifel assigned “buy” ratings to Booze Allen Hamilton Holding Corp. /zigman2/quotes/203977398/composite BAH +0.83% ($96 price target), Jacobs Engineering Group Inc. /zigman2/quotes/209082472/composite J +0.74% ($159 price target), Leidos Holdings Inc. /zigman2/quotes/202902477/composite LDOS +0.75% ($126 price target), and Parsons Corp. /zigman2/quotes/212182498/composite PSN +1.10% ($43 price target).
Among analyst Sabin’s comments on these four buy-rated stocks, he cited Booz Allen’s outsized exposure to the Navy, which is taking budget share from the Army, while Jacobs Engineering ranks as a “top beneficiary of increased semiconductor capital expenditures.”
Leidos Holdings, was described as “the best equipped government services provider to win contracts in an environment where size and scale are becoming increasingly more important.” Parsons Corp. is positioned to capture U.S. government budget dollars via its Federal Solutions unit while its critical infrastructure business benefits from spending on aviation, rail and bridges.
Stifel also initiated coverage of KBR Inc. /zigman2/quotes/204737382/composite KBR +1.90% with a buy rating and a $43 price target.
“KBR is uniquely positioned to grow across its portfolio as government spending increases in its primary verticals and commercial spending ramps in sustainable technology,” Sabin said.
Sabin cited five “distinct tailwinds” that should help KBR outperform including increased U.S. presence in Europe; mission technology, cyber defense and space growth; the company’s recent household goods contract win from U.S. Transportation Command valued at $20 billion, international defense spending growth, particularly in Australia, and growth in sustainable technology as oil prices remain elevated.
“In our view, all piece together a best-in-class growth story at an attractive valuation,” Sabing said of KBR.
Analysts also assigned hold ratings to CACI International Inc. /zigman2/quotes/205763384/composite CACI +1.59% ($305 price target) , ManTech International Corp. ($90 price target), Science Applications International Corp. /zigman2/quotes/202740286/composite SAIC +1.11% ($95 price target) and Vectrus Inc. ($42 price target).
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