On Thursday, Wolfe Research adjusted its stance on First Advantage (NASDAQ:FA), moving the stock's rating from "Outperform" to "Peer Perform." This change comes after the company's shares hit the firm's price target, leading to a reassessment of its market position.
The downgrade is primarily a result of valuation metrics, as Wolfe Research considers the current stock price to align with its long-term expectations. The firm cited a fair valuation based on a low double-digit Calendar Year 2026 EBITDA multiple.
Wolfe Research remains optimistic about First Advantage's recent acquisition of STER, acknowledging the potential long-term benefits of this deal. The firm's analysts believe the acquisition will be constructive for the company's growth.
Despite the downgrade, Wolfe Research suggests that investors could anticipate a more favorable moment to invest in First Advantage shares. They imply that future opportunities may present better entry points for the stock.
The adjustment in rating reflects Wolfe Research's current view on First Advantage's stock as it stands after reaching the previously set price target. The firm's commentary indicates a neutral position on the stock's immediate growth prospects while maintaining a positive outlook on the company's strategic moves.
In other recent news, First Advantage Corporation has made significant strides in its business operations. The company announced the promotion of Joelle Smith to the position of President, a role she assumed on September 16, 2024. Smith, who has been instrumental in driving the company's technological growth, will now oversee the product, data, and technology divisions, as well as the go-to-market teams.
This move is a strategic effort by First Advantage to enhance its product offerings with AI and digital products in the background screening and verification sectors. Smith's leadership has been integral to the company's successful IPO in June 2021 and the introduction of new products, solidifying First Advantage's market position.
In addition to its internal restructuring, First Advantage also revealed plans to acquire Sterling Check Corp, with the merger expected to be finalized in Q4 2024. This merger will result in Sterling becoming a wholly-owned subsidiary of First Advantage. The process for Sterling shareholders to elect their preferred form of merger consideration has been initiated, with the necessary election form distributed by Equiniti Trust Company.
However, the exact timing of the transaction's completion is not certain and is subject to regulatory approvals and other customary closing conditions.
InvestingPro Insights
Recent data from InvestingPro adds context to Wolfe Research's decision to downgrade First Advantage (NASDAQ:FA) to "Peer Perform." The company's market capitalization stands at $2.88 billion, with a P/E ratio of 115.85, suggesting a high earnings multiple that aligns with Wolfe Research's valuation concerns.
InvestingPro Tips highlight First Advantage's impressive gross profit margins, which is reflected in the data showing a gross profit margin of 49.5% for the last twelve months as of Q2 2024. This strength in profitability may contribute to the company's ability to leverage its recent STER acquisition effectively.
Additionally, the stock's strong performance is evident, with a 26.39% price return over the last three months and trading near its 52-week high at 98.56% of that peak. This recent momentum supports Wolfe Research's observation that the stock has reached their price target.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for First Advantage, providing a deeper understanding of the company's financial health and market position.
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