First Advantage (FA), a background screening company, just recently became a public company. In its IPO, the company put 25.5 million shares of common stock on the market, at price of $15 each. Overall, FA netted $383 million in usable capital from the sale.
This new public company has caught the eye of Jefferies analyst Hamzah Mazari who is unabashedly upbeat. The analyst rates FA shares a Buy along with a $23 price target. This figure implies 21.50% upside from current levels. (To watch Mazari’s track record, click here)
The current job cycle has put FA in a great position; millennials who change jobs every 2 years will drive screening volumes higher and the shifting employment landscape filled with contingent workers will add to the momentum especially since 26% of them prefer to work more than one job. These favorable trends provide operating leverage to FA and Mazari believes these factors will help drive up organic revenue growth to 8-10%.
FA has “first mover advantage” in the complex process of data collection as a result of their early investment in bots and their large focus on robotic process automation (RPA). Additionally, the company is “deeply embedded into customer workflows” and uses its single Enterprise Advantage platform that is made for customers ease at is functional and scalable.
Mazari notes the fragmented large addressable market that FA is in has strong vertical exposure. He goes to say “FA’s total TAM of ~$13bn consists of plenty of whitespace (~$7bn unvended) not to mention the company is the #1 provider with ~9% share of the vended market. We note that ~75% (~$3bn) of the international market remains unvended and believe growth potential in geographies such as Asia are underappreciated given ~half of new logos FA wins in APAC are from first time screeners.”
M&A could likely help at the margin since the market is highly fragmented. Mazari touches specifically on M&A fitting into three different acquisitions: international, vertical service provider and tech (AI or facial recognition). He notes that M&A are not expected for the sake of scale since most share gains are coming in naturally.
It’s not often that the analysts all agree on a stock, so when it does happen, take note. FA’s Strong Buy consensus rating is based on a unanimous 8 Buys. The stock’s $22.71 average price target suggests ~20% upside from the current share price of $18.96. (See FA stock analysis on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
