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Here's Why You Should Hold on to Jacobs (J) Stock for Now
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Jacobs Engineering Group Inc. (J - Free Report) has been gaining strength from healthy segmental businesses, transformed business model, acquisitions, cost savings and prudent strategy execution. Furthermore, its Focus 2023 initiative adds to the bliss.
Shares of this professional, technical and construction service provider have climbed 17.7% over the past year, faring better than the industry’s 4.8% gain. The price performance was backed by an impressive earnings surprise history. The company surpassed earnings estimates in 11 of the trailing 13 quarters. The trend is expected to continue in the near term, courtesy of its solid performance in fiscal 2020 despite disruptions caused by the COVID-19 outbreak.
Efficient Project Execution & Solid Backlog: Efficient project execution has been one of the main characteristics driving Jacobs’ performance over the last few quarters. The company’s ongoing contract wins are a testimony to the fact. Backlog at fiscal 2020-end was $23.8 billion, reflecting an increase of 5.5% year over year (up 3% on a pro-forma basis). This reflects persistent solid demand for Jacobs' consulting services. Critical Mission Solutions or CMS backlog grew 3% year over year on a pro-forma basis to $9.1 billion for fiscal 2020, which provided a strong visibility into the base business. The company’s overall 18-month qualified new business pipeline of $30 billion remains robust. This segment is benefiting from well-funded government programs and cyber, U.S. Department of Defense or DoD, mission-IT, space, nuclear, as well as 5G-related projects.
People & Places Solutions or P&PS backlog was up 4.2% year over year for the fiscal fourth quarter to $14.7 billion. Overall, the backlog growth can be attributed to its capitalization on CH2M and KeyW revenue synergies.
Buyouts: Jacobs is reinforcing the business on the back of meaningful business acquisitions and divestitures. In sync with this, in November 2020, the company acquired a leader in advanced cyber and intelligence solutions - The Buffalo Group. This strengthened its leading portfolio of national priority mission-focused, government solutions in the cyber domain and Intelligence Community. On Mar 6, 2020, a unit of Jacobs completed the acquisition of a nuclear consulting, remediation and program management business of John Wood Group, a U.K.-based energy services company.
Focus 2023 Initiative: In November 2020, Jacobs launched the Focus 2023 initiative, with expected benefits of more than $200 million versus fiscal 2020. Through this initiative, the company has been accelerating the adoption of digital technology across all facets of operations. This move will include a reduction in physical real estate footprint by more than 30% as it significantly shifts to a more flexible and virtual workforce. Jacobs expects that by 2023, this transformative initiative will provide it with the flexibility to materially invest in the business and enable the company to drive growth through technology-enabled solutions. Focus 2023 integration/transformation is expected to lead to $110 million of associated cash outflows in fiscal 2021. Also, this is expected to drive double-digit adjusted EBITDA growth in fiscal 2022.
Impediments
COVID-Related Woes: Although Jacobs has been successful in enhancing its ability to adapt to physical distancing, CMS’ pro-forma revenues were down 3.6% year over year for the fourth quarter of fiscal 2020. Excluding the impact of the two large lower-margin contracts that Jacobs has been transitioning off and benefits of the extra week of revenues, growth would have still been down in low-single digits year over year due to the impacts associated with the COVID-19 pandemic.
For CMS, although Jacobs expects the segment to grow in fiscal 2021, the improvements will be more back half oriented, given the impact from the two lower-margin contracts. In the P&PS segment, operating margin for the fiscal fourth quarter was down 210 basis points year over year, mainly due to COVID-related headwinds and some project closeout costs.
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Here's Why You Should Hold on to Jacobs (J) Stock for Now
Jacobs Engineering Group Inc. (J - Free Report) has been gaining strength from healthy segmental businesses, transformed business model, acquisitions, cost savings and prudent strategy execution. Furthermore, its Focus 2023 initiative adds to the bliss.
Shares of this professional, technical and construction service provider have climbed 17.7% over the past year, faring better than the industry’s 4.8% gain. The price performance was backed by an impressive earnings surprise history. The company surpassed earnings estimates in 11 of the trailing 13 quarters. The trend is expected to continue in the near term, courtesy of its solid performance in fiscal 2020 despite disruptions caused by the COVID-19 outbreak.
However, coronavirus-related headwinds are concerns for Jacobs, which shares space with Quanta Services, Inc. (PWR - Free Report) , AECOM (ACM - Free Report) and KBR, Inc. (KBR - Free Report) in the same industry. Let’s delve deeper into the factors that justify its current Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Growth Drivers
Efficient Project Execution & Solid Backlog: Efficient project execution has been one of the main characteristics driving Jacobs’ performance over the last few quarters. The company’s ongoing contract wins are a testimony to the fact. Backlog at fiscal 2020-end was $23.8 billion, reflecting an increase of 5.5% year over year (up 3% on a pro-forma basis). This reflects persistent solid demand for Jacobs' consulting services. Critical Mission Solutions or CMS backlog grew 3% year over year on a pro-forma basis to $9.1 billion for fiscal 2020, which provided a strong visibility into the base business. The company’s overall 18-month qualified new business pipeline of $30 billion remains robust. This segment is benefiting from well-funded government programs and cyber, U.S. Department of Defense or DoD, mission-IT, space, nuclear, as well as 5G-related projects.
People & Places Solutions or P&PS backlog was up 4.2% year over year for the fiscal fourth quarter to $14.7 billion. Overall, the backlog growth can be attributed to its capitalization on CH2M and KeyW revenue synergies.
Buyouts: Jacobs is reinforcing the business on the back of meaningful business acquisitions and divestitures. In sync with this, in November 2020, the company acquired a leader in advanced cyber and intelligence solutions - The Buffalo Group. This strengthened its leading portfolio of national priority mission-focused, government solutions in the cyber domain and Intelligence Community. On Mar 6, 2020, a unit of Jacobs completed the acquisition of a nuclear consulting, remediation and program management business of John Wood Group, a U.K.-based energy services company.
Focus 2023 Initiative: In November 2020, Jacobs launched the Focus 2023 initiative, with expected benefits of more than $200 million versus fiscal 2020. Through this initiative, the company has been accelerating the adoption of digital technology across all facets of operations. This move will include a reduction in physical real estate footprint by more than 30% as it significantly shifts to a more flexible and virtual workforce. Jacobs expects that by 2023, this transformative initiative will provide it with the flexibility to materially invest in the business and enable the company to drive growth through technology-enabled solutions. Focus 2023 integration/transformation is expected to lead to $110 million of associated cash outflows in fiscal 2021. Also, this is expected to drive double-digit adjusted EBITDA growth in fiscal 2022.
Impediments
COVID-Related Woes: Although Jacobs has been successful in enhancing its ability to adapt to physical distancing, CMS’ pro-forma revenues were down 3.6% year over year for the fourth quarter of fiscal 2020. Excluding the impact of the two large lower-margin contracts that Jacobs has been transitioning off and benefits of the extra week of revenues, growth would have still been down in low-single digits year over year due to the impacts associated with the COVID-19 pandemic.
For CMS, although Jacobs expects the segment to grow in fiscal 2021, the improvements will be more back half oriented, given the impact from the two lower-margin contracts. In the P&PS segment, operating margin for the fiscal fourth quarter was down 210 basis points year over year, mainly due to COVID-related headwinds and some project closeout costs.
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
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