Daily Stock Watch: Jacobs Engineering Reports Earnings Beat

By Kirsteen Mackay

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Jacobs Solutions (NYSE: J), formerly Jacobs Engineering stock, reported double-digit Q4 operating profit and EPS Y/Y growth, with a cautionary FX outlook.

Jacobs Engineering Stock is now Jacobs Solutions

Jacobs Solutions (NYSE: J) earnings beat analyst estimates but were within the guidance range. The Jacobs Engineering stock price is flat.

We finished fiscal 2022 with strong top and bottom line performance, positioning the company for continued growth in fiscal 2023.

Within Jacobs and PA Consulting, our scientists, engineers and thought leaders address many of the world's most complex challenges, like partnering with NASA to launch humans into deep space, driving energy transition solutions across the globe, and delivering software-defined solutions to protect the next-generation digitally enabled UK soldier.

Our focus on strong values and a brand promise to continue 'Challenging today. Reinventing tomorrow' is the intangible competitive differentiator that truly makes Jacobs a company like no other.

-      Steve Demetriou, Chair and CEO of Jacobs Solutions

Jacobs Solutions (NYSE: J) (Jacobs engineering stock) reported double-digit Q4 operating profit and Y/Y EPS growth. It also revealed full-year revenue of $3.9bn, up 8.2% Y/Y.

For the full year, FactSet analysts anticipated EPS of $6.91, and Jacobs returned $6.93. Actual sales of $14.92bn beat sales estimates of $14.89bn.

What Does Jacobs Solutions Do?

Jacobs Solutions (NYSE: J) is a global engineering stock designing cities, resilient environments, mission-critical outcomes, operational advancement, scientific discovery and cutting-edge manufacturing. With approximately $15bn in annual revenue, Jacobs employs around 60,000 staff.

Jacobs provides a full spectrum of professional services, including consulting, technical, scientific and project delivery for the government and private sectors. For instance, Jacobs supports the government-owned National Nuclear Laboratory in renewing infrastructure at its various facilities.

On August 29, 2022, Jacobs Engineering Group Inc. (JEGI), the predecessor to Jacobs Solutions Inc., implemented a holding company structure, which resulted in Jacobs Solutions Inc. becoming the parent company of, and successor issuer to, JEGI.

Q4 Highlights

  • Total Revenue: $3.9bn (up 8.2% Y/Y)

  • Net Earnings: $225m

  • EPS: $1.75

  • Adjusted EPS: $1.80

  • Adjusted EBITDA: $350m

  • Cash Flow From Operations: $278m

  • Free Cash Flow: $230m 

  • PA Consulting-led team selected by UK Ministry of Defence to deliver Software Defined Defense Solutions

  • Robust Backlog and Pipeline Driven by Global Climate Response, Infrastructure, Supply Chain Modernization and National Security

Jacobs' President and CFO Kevin Berryman said,

We achieved strong revenue growth and operating margin expansion during the fourth quarter and full fiscal year 2022, driven by our determination on delivering higher value, higher margin solutions with a disciplined focus on operational excellence. We are excited about the results and building momentum of our infrastructure and advanced facilities People & Places Solutions business.

Our fourth-quarter cash flow was robust and full-year cash flow was in-line with our expectations. Looking into fiscal 2023 and beyond, we are aligned to multiple large, growing and well-funded priorities, including global infrastructure modernization, climate response, investments in critical supply chains and national security.

Forward Guidance

Guiding for the full year 2023, Jacobs Solutions expects to achieve results dependent on FX volatility. Approximately 34% of its revenue comes from outside the US, with 21% of that revenue in UK pound sterling. Given the poor performance of the pound in recent years, it affects the company's revenue outlook.

Under FX scenario 1) an outlook based on a constant currency that provides greater insight into underlying business performance, Jacobs expects:

  • Adjusted EBITDA: $1,465m to $1,545m

  • Adjusted EPS: $7.60 to $7.90

Under FX scenario 2) an outlook based on recent FX rates in early November, Jacobs expects:

  • Adjusted EBITDA: $1,400m to $1,480m

  • Adjusted EPS: $7.20 to $7.50

On a net revenue basis, the difference between these two scenarios is approximately $430m.

How Does Jacobs Solutions Make Money?

Jacobs Solutions enjoys reimbursable recurring revenue thanks to its diverse portfolio, which helps it manage the impact of inflation. However, its exposure to multiple jurisdictions also comes with the pros and cons of volatility in foreign currency exchange.

Jacobs Engineering Stock Financials

Over the past year, Jacobs Solutions' share price has fluctuated between a low of $106.78 and a high of $150.32. Today Jacobs Engineering stock trades at around $125.97.

J stock has a price-to-earnings ratio (P/E) of 35 and a forward P/E of 16. Its price-to-book-value (P/BV) is 2.7. J stock comes with a meager dividend yield of 0.7%.

Analyst Ratings

17 FactSet analysts have a Buy rating on J stock, with a target share price of $153.27.

Jacobs Solutions Growth Potential and Risks

Looking ahead, Jacobs has identified three growth accelerators it can provide engineering solutions to Climate Response, Consulting & Advisory and Data Solutions.

In a period of unprecedented disruption, Jacobs Solutions intends to help its customers shape their future with the planet in mind. Jacobs Consulting & Advisory capabilities and Data Solutions help clients operate in a safe environment and innovate to capitalize on their data more than ever. This is particularly prevalent as the planet faces multiple macroeconomic challenges.

We know we have a pivotal role to play across the entire Climate Response value chain – helping to mitigate global risks and build long-term resilience to benefit people and the planet.

These growth accelerators cut across the entire business, open up significant high value growth opportunities with existing and new clients and create our focus on where we intend to deploy capital over the next several years.

Historically the company has grown through M&A. In fiscal 2023, the company will report a new business unit, Divergent Solutions, which serves innovative, next-generation cloud, cyber, data and digital technologies.

Jacobs Engineering CFO Kevin Berryman previously said they are not sensing client concerns, and specifically, in life science and semiconductors, clients continue to display a robust outlook. Indeed, the government CHIPS bill is a tailwind to Jacobs engineering's fab design business as it adds further credibility and growth opportunities.

Is Jacobs Engineering Stock a Good Investment?

Steven J. Demetriou, Chair & Chief Executive Officer, Jacobs Engineering Group, Inc., said:

We are excited about the momentum across all of our business as demonstrated by our accelerating revenue growth, our strong bookings and backlog and a robust sales pipeline globally.

The Jacobs Solutions share price has remained relatively flat over the past eighteen months. With a global recession on the cards, companies and consumers are reining in their spending amid the rapid rise in interest rates to cool inflation. Infrastructure engineering is a somewhat defensive business regarding government contracts, but contracts can be withdrawn or awarded to competitors.

Jacobs engineering stock faces both opportunities and headwinds, but its paltry dividend yield doesn't give investors much incentive to get on board.

If you enjoyed our Jacobs Solutions (Jacobs engineering stock) coverage, you might be interested in our Spatial Computing stocks article.

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Topics:
Construction and Engineering
Industries:
Industrials
Information Technology
Companies:
Jacobs Engineering Group

Author: Kirsteen Mackay

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Kirsteen Mackay does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Kirsteen Mackay has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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