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Jacobs (JEC) Gears Up for Q4 Earnings: What to Expect?

Premium technical services company Jacobs Engineering Group Inc. JEC is scheduled to report fourth-quarter fiscal 2015 results before the opening bell on Nov 23, 2015.

In the last four quarters, the company generated a positive average earnings surprise of 6.12%. Supported by a unique relationship-based model, Jacobs aims to improve its revenues and margins over time. Let’s see how things are shaping up prior to this announcement.

Factors to Influence Q4 Results

A worldwide decline in the prices of energy resources has been lowering the demand for Jacobs’ offerings. Depreciating demand is exerting pressure on the company’s commodity and service prices, which, in turn, is reducing the rate of capital expenditure.

As a result, the company’s oil sands business in Canada as well as the U.S. shale oil operations has suffered. We anticipate these negatives to continue affecting Jacobs’ trade in the coming quarter.

Moreover, the company’s revenue and profit margins remain highly susceptible to currency and exchange rate fluctuations in the market. Continued strength of the U.S. dollar with respect to other major currencies such as the Euro has been hurting the company’s international revenues.

Nevertheless, despite the above-mentioned adversities, Jacobs has secured a significant number of engineering and construction management services contracts during the quarter. The company was also chosen by EDF Energy for providing project management resources. These developments, likely to expand the company’s footprint as well as top line in the quarters ahead, bode well for its organic growth.

The company earns almost one-third of its revenues from acquisition-based deals. However, expenses associated with such transactions exert strain on the company’s margins in the short term.

Jacobs aims to grow on the back of tactical restructuring programs, cost-saving plans and record backlog levels. Given these optimistic plans, the company has raised its full-year fiscal 2015 guidance to a range of $3.11–$3.31 per share from the previous projection of $2.90–$3.20.

Earnings Whispers

Our proven model does not conclusively state that Jacobs is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for an earnings beat. That is not the case here as we will see below.
    
Zacks ESP: Jacobs has a negative Earnings ESP of 3.95% for the to-be-reported quarter, as the Most Accurate estimate of 73 cents stands below the Zacks Consensus Estimate of 76 cents.

Zacks Rank: Jacobs’ Zacks Rank #3 (Hold) increases the predictive power of Earnings ESP. However, combined with a negative ESP, this rank makes earnings predictions inconclusive.

Note that we caution against stocks with Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider instead, as our model shows these stocks have the right combination of elements to post an earnings beat this quarter:

YuMe, Inc. YUME, with an Earnings ESP of +200% and a Zacks Rank #1.

Total System Services, Inc. TSS, with an Earnings ESP of +1.70% and a Zacks Rank #2.

Heartland Payment Systems, Inc. HPY, with an Earnings ESP of +1.49% and a Zacks Rank #2.

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TOTAL SYS SVC (TSS): Free Stock Analysis Report
 
JACOBS ENGIN GR (JEC): Free Stock Analysis Report
 
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