Breaking Down Parsons Corporation (PSN) Financial Health: Key Insights for Investors

You're looking at Parsons Corporation (PSN) right now, trying to square the headline revenue dip with the underlying business momentum, and honestly, that's the right tension to focus on. In the third quarter of 2025, the company reported total revenue of $1.6 billion, which was a 10% drop year-over-year, but here's the quick math: excluding the impact of a single confidential contract, organic revenue actually grew by a strong 14%. The real story is margin expansion and future visibility; they pushed their adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) margin to an industry-leading 9.8% and, more importantly, stacked up a record total backlog of $8.8 billion, the highest since their IPO. That massive backlog, which is 72% funded, is the clearest near-term opportunity, suggesting that while the Federal Solutions segment had a temporary revenue headwind, the Critical Infrastructure segment is booming, plus the Street still gives them an average price target of $93.25 as of November 2025. You defintely need to understand how they're turning those contract wins into predictable net income, which stood at $64 million for Q3, to make a confident decision.

Revenue Analysis

You're looking at Parsons Corporation (PSN) and seeing a mixed signal on the topline, and honestly, you're right to dig in. The direct takeaway is this: while the headline numbers show a dip, the core business is defintely still growing fast, driven by infrastructure spending and strong defense markets. You need to look past the 'confidential contract' effect to see the real momentum.

Parsons Corporation's revenue for the full fiscal year 2025 is projected to fall within a guidance range of $6.4 billion to $6.5 billion. This is a slight downward revision from earlier guidance, but it reflects timing issues and the wind-down of a specific, high-volume contract, not a fundamental business problem. For context, their 2024 annual revenue was a record $6.75 billion, representing a 24% year-over-year surge.

Understanding Parsons Corporation (PSN)'s Revenue Streams

Parsons Corporation operates primarily through a balanced, two-segment model, which is a smart way to manage cyclical government and infrastructure spending. This dual focus gives them resilience. Here's the quick breakdown of their primary revenue sources:

• Critical Infrastructure (CI): This segment focuses on large-scale infrastructure projects, including transportation, water, environmental solutions, and urban development. Think of this as capitalizing on the massive, ongoing global infrastructure spending.
• Federal Solutions (FS): This is the national security arm, providing solutions to the U.S. federal government. This includes high-growth areas like cyber and intelligence, space, and missile defense.

To be fair, the nature of their work means a significant portion of their revenue comes from providing technology-driven solutions to the U.S. federal government and global infrastructure markets.

Year-over-Year Revenue Growth and Segment Contribution

The year-over-year revenue growth rate presents a nuanced picture. Looking at the third quarter of 2025 (Q3 2025), total revenue was $1.6 billion, which was a 10% decrease year-over-year. But here's the key number: excluding the impact of the confidential contract that is winding down, total revenue actually grew by a robust 14%. This is the number you should focus on for underlying business health.

Here's how the two segments contributed to the Q3 2025 revenue, showing a clear shift in momentum:

The Critical Infrastructure segment is clearly picking up the slack, with its revenue jumping by $129 million from Q3 2024. This segment's 18% growth is a massive tailwind. The Federal Solutions segment's 29% decline is alarming on its face, but when you strip out the confidential contract, that segment still posted a healthy 9% growth. The company is actively diversifying its revenue, securing new contracts in the Middle East and expanding its water management capabilities in Florida. You can find more details on this transition in Breaking Down Parsons Corporation (PSN) Financial Health: Key Insights for Investors.

What this estimate hides is the potential for new, large sole-source task order awards, which have been delayed due to federal customer capacity constraints and government shutdowns, impacting the timing of revenue recognition. Still, the total backlog remains high at $8.8 billion, with 72% of it funded. That's a strong indicator of future revenue stability.

Next Step: Finance: Model the 2026 revenue with two scenarios: one where the confidential contract revenue goes to zero, and one where the core 14% growth rate accelerates to 16% based on the funded backlog conversion rate.

Profitability Metrics

You want to know if Parsons Corporation (PSN) is actually turning its massive government and infrastructure contracts into real profit. The short answer is yes, they are, but the margins tell a nuanced story about operational efficiency and segment strength. Parsons is currently guiding for full-year 2025 revenue between $6.4 billion and $6.5 billion, with Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) expected to land between $600 million and $630 million.

Here's the quick math on their profitability, using the most recent trailing twelve months (TTM) data as a strong proxy for the 2025 fiscal year. You'll see a clear picture of how much revenue is left after covering costs at each stage of the income statement.

Parsons' Gross Profit Margin of about 21.43% is typical for a technology and professional services firm in the defense space, reflecting the nature of cost-plus and fixed-price contracts. What's interesting is the jump to the Net Profit Margin of 5.91%, which is actually higher than the Defense Primes average of 5.0%. This suggests strong non-operating income or very effective tax and interest management, which is defintely a win for shareholders.

Operational Efficiency and Margin Trends

The trend in profitability is where the story gets compelling, especially in operational efficiency. While the GAAP (Generally Accepted Accounting Principles) Gross Margin has seen a slight decline over the last few years, the Operating Margin and Net Margin have been on a strong upward trajectory. For example, the TTM Operating Margin of 6.28% compares favorably to 3.62% just a few years ago. This shows management's focus on controlling Selling, General, and Administrative (SG&A) expenses and improving program execution.

• Operating Margin is improving fast.
• Net Income has grown significantly, with a five-year net income growth rate of 28%.
• Adjusted EBITDA Margin is expanding, hitting 9.8% in Q3 2025, up 60 basis points year-over-year.

The segment data for Q3 2025 highlights where the operational strength is coming from: the Critical Infrastructure segment is surging, with its Adjusted EBITDA margin expanding significantly to 10.3%. This is helping to offset the headwinds in the Federal Solutions segment, where revenue declined by 29% due to the wind-down of a large confidential contract. This balanced portfolio approach is what's keeping the overall profitability picture so stable and positive. You can see how this strategy fits into the bigger picture by reviewing the company's Mission Statement, Vision, & Core Values of Parsons Corporation (PSN).

What this estimate hides is the reliance on Adjusted EBITDA, a non-GAAP measure, which is higher at a 9.5% midpoint for the full year 2025 guidance. You should always look at the GAAP Operating Margin of 6.28% to understand the true core operating performance, which is still below the peer average of 8.7%. The key action here is to watch if the Critical Infrastructure segment's high-margin performance can continue to pull up the overall corporate operating margin in 2026.

Debt vs. Equity Structure

You want to know how Parsons Corporation (PSN) is funding its growth, and the balance sheet tells a clear story: they are using a moderate amount of debt to fuel expansion, but they are defintely not over-leveraged. As of the third quarter of 2025, Parsons Corporation's debt-to-equity (D/E) ratio stood at a manageable 0.46, based on the most recent reported fiscal quarter ending September 30, 2025.

This 0.46 ratio is slightly higher than the Aerospace & Defense industry average of around 0.38, but it remains well below the 1.0 threshold that signals a company is using more debt than shareholder equity to finance its assets. Parsons Corporation is using debt strategically to capitalize on market opportunities, especially in its Federal Solutions and Critical Infrastructure segments.

Here's the quick math on their current debt structure, based on Q2 and Q3 2025 figures:

• Total Debt: Approximately $1.331 billion as of June 30, 2025.
• Total Equity: Approximately $2.621 billion as of June 30, 2025, providing a strong equity cushion.

The company's overall debt load is heavily skewed toward long-term obligations, which is typical for a business with major, multi-year government contracts and infrastructure projects.

The long-term debt figure of $1.242 billion for Q3 2025 shows their reliance on stable, patient capital. Short-term debt, at $84.919 million as of Q2 2025, is a small fraction of the total capital structure, which is a good sign for near-term liquidity.

Recent Debt Management and Refinancing

Parsons Corporation has been proactive in managing its debt profile this year. In June 2025, they refinanced their loans, securing a new $450 million unsecured term loan and a $750 million revolving credit facility. This move provides significant liquidity and flexibility for general working capital, capital expenditures, and potential future acquisitions.

Also, a notable action in the third quarter of 2025 was the settlement of the remaining balance on their 2025 convertible senior notes, using cash on hand to pay off the final $85 million. This settlement reduces a near-term maturity obligation and eliminates the risk of equity dilution from conversion, showing a preference for a clean capital structure as they move into 2026. They are clearly focused on using debt for strategic growth, not just day-to-day operations.

For a deeper look into the institutional money behind the company, check out Exploring Parsons Corporation (PSN) Investor Profile: Who's Buying and Why?

Liquidity and Solvency

You need to know if Parsons Corporation (PSN) can meet its short-term bills, and the answer is a clear yes. The company's liquidity position is defintely strong, anchored by high current and quick ratios that signal a healthy buffer of liquid assets. Still, the recent dip in operating cash flow is a trend we need to watch closely.

Parsons Corporation's liquidity is excellent, especially for a government and infrastructure contractor. The Current Ratio and Quick Ratio both stand at an impressive 1.67 as of the most recent data. A ratio above 1.0 is generally considered safe, meaning current assets outweigh current liabilities. The fact that the quick ratio (which excludes inventory) is the same as the current ratio tells you this is a service-based business with virtually no inventory to worry about turning into cash.

This translates directly into a robust working capital position. Here's the quick math: with Current Assets around $2.59 billion and Current Liabilities at approximately $1.61 billion in Q2 2025, the working capital is nearly $1 billion. This surplus gives Parsons Corporation significant flexibility to fund new projects, manage day-to-day operations, and handle any unexpected short-term obligations without stress.

When we look at the cash flow statements, the picture is generally positive but shows some fluctuation. Cash Flow from Operating Activities (CFOA) for the nine months ended September 30, 2025, was $311 million. However, this figure is down from $397 million in the prior-year period. The full-year 2025 guidance for CFOA is projected to be between $380 million and $460 million. That range is still healthy, but the year-over-year decline in the first three quarters warrants a deeper dive into the timing of payments on large contracts.

The other cash flow components show a company actively investing and managing its capital structure. You see consistent outflows from the other two sections:

• Investing Cash Flow: Outflows of around $-164.31 million in Q2 2025, largely due to strategic acquisitions that expand the company's capabilities.
• Financing Cash Flow: Outflows of about $-29.19 million in Q2 2025, reflecting capital allocation, including debt management and share repurchases.

The key strength here is the funded backlog, which hit a post-IPO high of $6.4 billion at the end of Q3 2025, representing 72% of the total backlog. That funded backlog is essentially guaranteed future revenue, which provides a strong, long-term underpinning for liquidity. The near-term risk is simply maintaining the pace of operating cash flow generation to hit that full-year guidance. For a full strategic view, check out our analysis on Breaking Down Parsons Corporation (PSN) Financial Health: Key Insights for Investors.

Next Step: Portfolio Managers should confirm the company's Q4 2025 cash conversion cycle to ensure the operating cash flow trend reverses and hits the guidance midpoint of $420 million.

Valuation Analysis

You want to know if Parsons Corporation (PSN) is a good buy right now, and the short answer is that the market is pricing in significant future growth, suggesting it's trading at a premium. The valuation multiples point toward an overvalued stock relative to its trailing earnings, but analysts see a clear path for that premium to be justified by future growth in the defense and infrastructure sectors.

As of November 2025, Parsons Corporation's Trailing Twelve Months (TTM) Price-to-Earnings (P/E) ratio sits at a high 38.39. To put that in perspective, the estimated P/E for the full 2025 fiscal year is around 38x, based on an estimated Earnings Per Share (EPS) of about $2.281. This is a rich multiple, signaling that investors expect a sharp increase in earnings to make the current stock price of roughly $83.29 sensible. For a more forward-looking view, the Forward P/E drops to 24.61, which is still elevated but shows the market's expectation for strong earnings growth in the next year.

Here's the quick math on other key multiples:

• Price-to-Book (P/B): The TTM P/B ratio is 3.47. This suggests the stock is trading at more than three times its book value, another sign of a premium valuation, likely due to the company's high-value, intangible intellectual property and strong contract backlog, which aren't fully captured on the balance sheet.
• Enterprise Value-to-EBITDA (EV/EBITDA): The TTM EV/EBITDA is around 16.24. This is a better measure for capital-intensive businesses like this. While the estimated 2025 fiscal year EV/EBITDA is lower at 14.1x, the TTM figure is near the high end of its historical median of 18.12 over the past nine years, suggesting the stock is fully valued based on its operating cash flow.

The stock price trend over the last 12 months has been volatile, with the price decreasing by about 12.40%. The 52-week trading range has spanned from a low of $54.56 to a high of $101.92, which shows the market's indecision but also the potential for significant upside based on contract wins. Want to dig deeper into who is driving this volatility? You should check out Exploring Parsons Corporation (PSN) Investor Profile: Who's Buying and Why?

What this estimate hides is that Parsons Corporation is a growth-focused company that does not pay a dividend. The dividend yield and payout ratios are both 0.00%, as the company prioritizes reinvesting all its earnings into acquisitions and organic growth, especially in its Federal Solutions segment.

The analyst consensus is still firmly bullish. Based on ratings from 17 analysts, the average consensus price target is $88.31, with a high target of $107.00 issued by UBS on November 19, 2025. The overall recommendation is leaning toward a Buy or Outperform rating. The consensus suggests an implied upside from the current price, but you must be defintely comfortable with a premium valuation based on execution risk and future contract performance. This is a growth story, not a value play.

Risk Factors

You're looking for the clear-eyed view on Parsons Corporation (PSN), and honestly, the biggest near-term risk has a very specific name: a confidential government contract. The company's financial health is strong overall, but a recent shift in a major Federal Solutions program has created a significant headwind that investors need to understand.

The core issue is a strategic and operational risk tied to the U.S. government, which represented approximately 59% of Parsons Corporation's 2024 revenue profile. The uncertainty stems from a Department of State reorganization in May 2025 that eliminated the program office responsible for a large, confidential, fixed-price contract.

Here's the quick math on the impact: Parsons Corporation revised its full-year 2025 revenue guidance downward to a range of $\mathbf{\$6.4}$ billion to $\mathbf{\$6.5}$ billion, a significant drop from the initial forecast of up to $\mathbf{\$7.5}$ billion. This contract's lower volume was the primary driver for the Federal Solutions segment's adjusted EBITDA decreasing by 40% year-over-year in Q3 2025.

Operational and Financial Risks

Beyond the single contract, there are other operational and financial pressure points. The Federal Solutions segment's revenue declined 29% year-over-year in Q3 2025, demonstrating a vulnerability in their largest segment when a key program falters. This decline also had a ripple effect on working capital.

Specifically, the company's Net Days Sales Outstanding (DSO)-which measures how long it takes to collect payments-increased by $\mathbf{11}$ days to $\mathbf{62}$ days in Q3 2025. That's a clear sign of collection timing issues, not just from the confidential contract but also from the timing of collections in the Middle East. Cash flow is defintely something to watch. The latest 2025 forecast for Cash Flow from Operating Activities is between $\mathbf{\$380}$ million and $\mathbf{\$460}$ million.

• Government contract termination is a constant threat.
• Inability to attract or retain employees with high-level security clearances.
• Risk of inaccurate cost estimates on fixed-price contracts.

External and Market Risks

Parsons Corporation operates in highly competitive markets-national security and critical infrastructure-where pricing pressure is always a factor. Because so much of their business is tied to the U.S. government, they face unique market risks that are outside of management's control.

These external risks are cyclical and political. Government shutdowns, for instance, can impact material procurement and task order awards, creating project delays and revenue volatility. Plus, analysts are always concerned about slower procurement timelines and potential federal budget constraints, which could slow the flow of new contract awards.

Here is a snapshot of the revised 2025 guidance reflecting these risks:

Mitigation and Opportunity

What this estimate hides is Parsons Corporation's strong mitigation strategy: diversification and a massive pipeline. Management has essentially zeroed out the problem contract for the rest of 2025, which means the current guidance reflects a more realistic floor. The rest of the business is actually quite healthy, with the Critical Infrastructure segment showing an 18% year-over-year revenue increase in Q3 2025.

The company is mitigating federal budget risks by focusing on diversified funding sources and state-level infrastructure spending. They also boast a total backlog of $\mathbf{\$8.8}$ billion as of Q3 2025, with an additional $\mathbf{\$10}$ billion to $\mathbf{\$11}$ billion in contracts awaiting award or not yet booked, which is a huge buffer against short-term volatility. They are also actively using strategic acquisitions to enhance capabilities in high-growth areas like cyber and critical infrastructure. You can read more about this in our full deep-dive: Breaking Down Parsons Corporation (PSN) Financial Health: Key Insights for Investors.

Growth Opportunities

Parsons Corporation (PSN) is defintely poised for continued expansion, but you need to understand where the growth is actually coming from. The core takeaway is that the company is successfully pivoting its portfolio toward higher-margin, technology-driven solutions in both defense and critical infrastructure, even as some legacy federal contracts wind down.

The company's future is built on two primary engines: strategic acquisitions that instantly boost technical capabilities and a clear alignment with massive, multi-year government spending programs. Parsons aims to sustain mid-single-digit or better organic revenue growth long-term, plus they plan to supplement this with two to three strategic acquisitions annually. This is a disciplined, repeatable growth model.

Key Growth Drivers: Tech and Infrastructure

Parsons' growth isn't just about winning more of the same contracts; it's about winning in the most complex, high-value areas. This focus is what drives margin expansion. Their strategic initiatives center on product innovation and market expansion, particularly in cyber and environmental services.

• Product Innovations: They are pushing capabilities like the ZEUS Directed Energy System, a leap-ahead solution for military platforms.
• Cyber & Electronic Warfare: Acquisitions like Chesapeake Technology International (CTI) for $89 million in July 2025 enhance their position in the 'invisible battlespace' of cyber and intelligence, aligning with high-priority defense technology spending.
• Environmental Remediation: The February 2025 acquisition of TRS Group for $36 million significantly strengthens their expertise in Per- and Polyfluoroalkyl Substances (PFAS) cleanup, a major, long-term environmental liability for both government and commercial clients.
• Infrastructure Expansion: The 2024 acquisition of BCC Engineering for $230 million expands their reach in the Southeastern U.S., positioning them to capture a larger share of the federal Infrastructure Investment and Jobs Act (IIJA) funding.

Here's the quick math on their contract security: the funded backlog stood at a robust $6.2 billion in Q2 2025, and their trailing 12-month book-to-bill ratio was 1.0x, meaning they are replacing every dollar of revenue with a dollar of new work. That backlog provides a solid floor for future revenue.

2025 Financial Projections and Estimates

For the 2025 fiscal year, management has updated its revenue guidance to a range of $6.4 billion to $6.5 billion, a modification from the initial outlook due to timing delays on federal sole-source task order awards. Still, the underlying profitability remains strong. They reiterated their Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) guidance, keeping the midpoint of the range intact.

The analyst consensus for 2025 earnings per share (EPS) is expected to be in the range of $3.58 to $4.10 per share, reflecting a strong increase over the prior year. For example, their Q3 2025 EPS of $0.86 beat analyst consensus estimates of $0.74, showing operational strength.

Competitive Advantages: The Technology Edge

Parsons Corporation's main competitive advantage is its ability to integrate technology into traditional infrastructure and defense services. This is a critical differentiator in a crowded market. They are not just an engineering firm; they are a technology-enabled solutions provider.

Their dual-market focus-Federal Solutions and Critical Infrastructure-acts as a natural hedge, cushioning the business when one segment faces headwinds, like the Q2 2025 decline in the Federal segment due to a confidential contract wind-down. Plus, their reputation and standing with the U.S. government are significant barriers to entry for competitors. They also leverage their status as a VETS Indexes 5 Star Employer to attract highly-cleared military talent, which is a key advantage when pursuing sensitive defense contracts. If you want to dive deeper into who is investing in this strategy, you should check out Exploring Parsons Corporation (PSN) Investor Profile: Who's Buying and Why?