Verra Mobility (VRRM) reported weaker Q1 but underlying drivers in government and commercial segments remained healthy, Morgan Stanley said in a report Wednesday.

The report said softness in Q1 was primarily related to inclement

weather impacting both segments, which was seen as "transient and not reflective of healthy underlying trends."

The note pointed to the government segment with improving annual recurring revenue trends and key wins in Hawaii and Florida, despite recent headlines pressuring the stock.

Looking ahead, the report said margins are expected to remain pressured in the medium term from New York City contracts and portfolio mix but are expected to improve in 2027 and beyond.

"We remain EW as we expect VRRM to continue benefiting from secular tailwinds like travel, in addition to recent momentum in Government Solutions," the note said. EW refers to equalweight.

"These benefits as largely baked into current market valuation, offset by associated headline risk," it added. Morgan Stanley cut its price target to $20 from $24.

Shares were down over 14% in recent trading.

Price: 16.06, Change: -2.65, Percent Change: -14.16