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Infrastructural Push Bodes Well for Jacobs (J) Amid High Cost
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Infrastructure modernization backed by a huge infrastructure bill deemed by U.S. president Joe Biden would give construction companies like Jacobs Engineering Group Inc. (J - Free Report) and others a solid foundation for growth. Also, Jacobs’ increased focus on backlog, acquisitions and efforts to concentrate on high-value business are positives.
Shares of this professional, technical and construction service provider have climbed 16.4% over the past six months, faring better than the industry’s 15.3% rally. The price performance was backed by an impressive earnings surprise history. The company surpassed earnings estimates in 14 of the trailing 16 quarters. The trend is expected to continue in the near term, courtesy of its solid performance in third-quarter fiscal 2021.
Image Source: Zacks Investment Research
Recently, the company reported third-quarter fiscal 2021 results, wherein earnings and revenues beat the Zacks Consensus Estimate as well as grew 30.2% and 9.7% year over year, respectively, driven by solid project execution. It has also lifted its fiscal 2021 guidance, given strong business momentum.
Biden’s Infrastructural Push: Share price of Jacobs should continue to maintain positive momentum in the near term, as the company’s solutions are closely aligned with President Biden’s policies and industry trends. Jacobs is expected to benefit from strong global trends in infrastructure modernization, energy transition, national security and a potential super-cycle in global supply chain investments.
For the fiscal third quarter, it reported backlog of $25.4 billion, increasing 7.4% year over year (up 3% on a pro-forma basis). This reflects persistent solid demand for Jacobs' consulting services.
Looking beyond fiscal 2021, it believes that the company has been entering an attractive growth period, courtesy of strong global trends and infrastructure modernization, energy transition, national security, along with a potential super cycle in global supply chain investments, most notably in semiconductors and life sciences.
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.
Acquisitions: Jacobs is reinforcing the business on the back of meaningful business acquisitions and divestitures. In sync with this, on Mar 2, Jacobs acquired a 65% interest in PA Consulting — a U.K.-based leading innovation and transformation consulting firm — for $1.7 billion. The remaining 35% interest is held by PA Consulting employees. PA Consulting will be treated as a consolidated subsidiary and a separate operating segment under U.S. GAAP accounting rules. It continues to expect 32-34 cents of adjusted EPS accretion from PA Consulting in fiscal 2021.
Headwinds
Although the company is efficiently managing working capital and taking certain initiatives to combat cost woes, labor-related medical costs, IT-related investment expenses as well as other investments may put pressure on margins.
During the fiscal third quarter, Jacobs unveiled that it expects non-allocated corporate cost to be slightly higher in the fourth quarter, given persistent increase in medical costs and other investments, as it is well positioned for growth momentum in fiscal 2022 and beyond.
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Infrastructural Push Bodes Well for Jacobs (J) Amid High Cost
Infrastructure modernization backed by a huge infrastructure bill deemed by U.S. president Joe Biden would give construction companies like Jacobs Engineering Group Inc. (J - Free Report) and others a solid foundation for growth. Also, Jacobs’ increased focus on backlog, acquisitions and efforts to concentrate on high-value business are positives.
Shares of this professional, technical and construction service provider have climbed 16.4% over the past six months, faring better than the industry’s 15.3% rally. The price performance was backed by an impressive earnings surprise history. The company surpassed earnings estimates in 14 of the trailing 16 quarters. The trend is expected to continue in the near term, courtesy of its solid performance in third-quarter fiscal 2021.
Image Source: Zacks Investment Research
Recently, the company reported third-quarter fiscal 2021 results, wherein earnings and revenues beat the Zacks Consensus Estimate as well as grew 30.2% and 9.7% year over year, respectively, driven by solid project execution. It has also lifted its fiscal 2021 guidance, given strong business momentum.
However, high costs & expenses 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.
Major Growth Drivers
Biden’s Infrastructural Push: Share price of Jacobs should continue to maintain positive momentum in the near term, as the company’s solutions are closely aligned with President Biden’s policies and industry trends. Jacobs is expected to benefit from strong global trends in infrastructure modernization, energy transition, national security and a potential super-cycle in global supply chain investments.
For the fiscal third quarter, it reported backlog of $25.4 billion, increasing 7.4% year over year (up 3% on a pro-forma basis). This reflects persistent solid demand for Jacobs' consulting services.
Looking beyond fiscal 2021, it believes that the company has been entering an attractive growth period, courtesy of strong global trends and infrastructure modernization, energy transition, national security, along with a potential super cycle in global supply chain investments, most notably in semiconductors and life sciences.
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.
Acquisitions: Jacobs is reinforcing the business on the back of meaningful business acquisitions and divestitures. In sync with this, on Mar 2, Jacobs acquired a 65% interest in PA Consulting — a U.K.-based leading innovation and transformation consulting firm — for $1.7 billion. The remaining 35% interest is held by PA Consulting employees. PA Consulting will be treated as a consolidated subsidiary and a separate operating segment under U.S. GAAP accounting rules. It continues to expect 32-34 cents of adjusted EPS accretion from PA Consulting in fiscal 2021.
Headwinds
Although the company is efficiently managing working capital and taking certain initiatives to combat cost woes, labor-related medical costs, IT-related investment expenses as well as other investments may put pressure on margins.
During the fiscal third quarter, Jacobs unveiled that it expects non-allocated corporate cost to be slightly higher in the fourth quarter, given persistent increase in medical costs and other investments, as it is well positioned for growth momentum in fiscal 2022 and beyond.