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Why Is Jacobs Engineering (J) Down 1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Jacobs Engineering (J - Free Report) . Shares have lost about 1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Jacobs Engineering due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Jacobs (J - Free Report) Tops Q3 Earnings & Revenue Estimates, Raises View

Jacobs Engineering Group Inc. reported third-quarter fiscal 2020 (ended Jun 26, 2020) results, wherein earnings and revenues beat the respective Zacks Consensus Estimate, courtesy of solid project execution. Meanwhile, the company raised its adjusted EBITDA and EPS guidance for fiscal 2020, based on improved performance so far this year.

Jacobs’ president and CFO Kevin Berryman said, “The strategy we developed and have been executing since 2016 to build a company aligned to sustainable higher growth markets has proved its resilience during one of the most severe economic shocks in history. The highly recurring mission-critical nature of our work, combined with our ability to rapidly adjust virtually, enabled us to deliver solid earnings and strong free cash flow generation during this unprecedented pandemic.”

Earnings & Revenue Discussion

For the reported quarter, its adjusted earnings of $1.26 per share topped the consensus estimate of 99 cents by 27.3% but decreased 10% from the year-ago period.

Jacobs’ revenues totaled $3.3 billion, which surpassed the consensus mark of $3.1 billion by 3.7% and grew 2.9% year over year. The improvement was driven by healthy segmental performance.
Backlog at fiscal third quarter-end totaled $23.7 billion, up 5.4% from a year ago.

Segment Details

Revenues from the Critical Mission Solutions segment of $1.21 billion increased 4.7% year over year. Backlog at quarter-end was $9.1 billion, up 7.2% year over year.

Revenues from the People & Places Solutions segment totaled $2.05 billion, which increased 1.8% year over year. Revenues, excluding pass through revenues, declined 0.6% from the year-ago period. Backlog at quarter-end was $14.6 billion, up 4.3% year over year.

Margins Profile

For the quarter under review, adjusted gross profit increased 0.4% year over year to $630.9 million.

Adjusted operating margin expanded 80 basis points to 8.9%.

Balance Sheet & Cash Flow

At fiscal third quarter-end, Jacobs had cash and cash equivalents of $1.02 billion, significantly up from $631.1 million at fiscal 2019-end. Long-term debt balance increased to $2.16 billion at the end of the reported quarter from $1.2 billion at fiscal 2019-end.

The company provided $359.5 million cash for operating activities for the quarter compared with $169.1 million of cash used in operating activities a year ago.

2020 Guidance Raised

Jacobs now expects adjusted EBITDA between $1,000 million and $1,050 million compared with $950-$1,050 million expected earlier. Also, it anticipates adjusted earnings within $5.05-$5.30 per share compared with $4.80-$5.30 expected earlier.

Jacobs has been transitioning off a lower margin classified procurement contract, which will affect short-term revenue growth but have little impact on operating profit for the fiscal fourth quarter.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -6.25% due to these changes.

VGM Scores

At this time, Jacobs Engineering has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Jacobs Engineering has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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