Shareholders appeared unconcerned with Parsons Corporation's (NYSE:PSN) lackluster earnings report last week. We did some digging, and we believe the earnings are stronger than they seem.
The Impact Of Unusual Items On Profit
For anyone who wants to understand Parsons' profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$221m due to unusual items. While deductions due to unusual items are disappointing in the first instance, there is a silver lining. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Parsons took a rather significant hit from unusual items in the year to March 2024. All else being equal, this would likely have the effect of making the statutory profit look worse than its underlying earnings power.
That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.
Our Take On Parsons' Profit Performance
As we discussed above, we think the significant unusual expense will make Parsons' statutory profit lower than it would otherwise have been. Based on this observation, we consider it possible that Parsons' statutory profit actually understates its earnings potential! On the other hand, its EPS actually shrunk in the last twelve months. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. If you want to do dive deeper into Parsons, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 2 warning signs with Parsons, and understanding these should be part of your investment process.
Today we've zoomed in on a single data point to better understand the nature of Parsons' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.