On Thursday, Parsons Corp . (NYSE:PSN) had its share price target increased by Stifel from the previous $83.00 to $90.00, while the firm maintained a Buy rating on the stock. The adjustment comes as Parsons decided to settle its outstanding convertible debt earlier than anticipated through a new transaction.
The company's early debt settlement is expected to raise its annual net interest expense by approximately $10 million. Still, this move is set to provide Parsons with greater flexibility for potential mergers and acquisitions.
Despite the increase in interest expense, the company secured a 2.625% interest rate on the new convertible debt, which is higher than the former 0.25% rate but still considered favorable.
The new convertible notes will be in the money when the stock price reaches or exceeds $94.11. Parsons has implemented capped calls to mitigate the potential dilution from the convertibles, effective up to a stock price of $131.76.
Through this financial rearrangement, Parsons raised roughly $800 million, less fees, and retired $400 million of debt, plus a premium, while also balancing the profits from their previous capped calls.
Stifel's updated financial model for Parsons anticipates that the company's net interest expense for the fiscal year 2024 will increase by about $10 million, from an estimated $32 million to approximately $42 million. This projection accounts for the difference between the amounts and rates of the convertible debt, continued debt repayment in 2024, and increased interest income.
The price target hike to $90 reflects Stifel's growing optimism about Parsons' prospects, particularly in the U.S. transportation infrastructure sector. The firm has also increased its EBITDA estimates for the company in light of these developments.
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