BMO Capital Markets Initiates Coverage on First Advantage Corp

BMO Capital Markets has started coverage on First Advantage Corp (NASDAQ:FA) with an “Outperform” rating, highlighting positive trends in the hiring market and benefits from the recent acquisition of Sterling Check Corp (STER).

Despite broader labor market challenges, BMO believes First Advantage is well-positioned for growth, benefiting from its leading position in the employment background screening industry. They have set a price target of $24 for this background screening services provider.

While macroeconomic issues have impacted pre-employment screening revenue, BMO indicates early signs of recovery in hiring trends, referencing data from the Job Openings and Labor Turnover Survey (JOLTS), Atlanta Fed, and Challenger reports. These changes, alongside easier comparisons in 2025, may lead to revenue growth and margin expansion.

The acquisition of STER, finalized on October 31, 2024, is a crucial step, further strengthening FA’s leadership in a fragmented market, according to BMO analysts. They see this deal as strategically beneficial, combining STER’s automation capabilities with FA’s wide vertical coverage to create opportunities for cost synergies and increased market share.

Although near-term volatility from integration expenses and deleveraging is anticipated, BMO expects significant earnings growth by 2026 due to realization of synergies and a recovering labor market.

FA’s current valuation looks appealing compared to its historical trading range, especially given its strong performance amidst macro pressures, BMO noted. Analysts believe the combination of improving hiring dynamics, acquisition-related synergies, and an undervalued stock price presents a compelling entry point for medium-term investors.