A month has gone by since the last earnings report for Jacobs Engineering (J). Shares have added about 0.5% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Jacobs Engineering due for a pullback? 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) Tops Q4 Earnings Estimates, Buys The Buffalo Group
Jacobs Engineering Group Inc. reported fourth-quarter fiscal 2020 (ended Oct 2, 2020) results, wherein earnings and revenues beat the respective Zacks Consensus Estimate, courtesy of solid project execution.
Its president and CFO Kevin Berryman said, "Our focus on delivering innovative and technology-enabled solutions for a more connected, sustainable world is even more critical today than any time in our company's history. During fiscal 2020 we grew revenue and profits year-over-year, generated $689 million in free cash flow and are positioned for operating profit growth and strong cash flow generation in fiscal 2021. The next phase of our growth will be propelled by Jacobs' Focus 2023 initiative – further accelerating our global integrated delivery of technology-enabled solutions."
Meanwhile, Jacobs 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. However, the terms of the acquisition are not yet disclosed.
Earnings & Revenue Discussion
For the reported quarter, its adjusted earnings of $1.63 per share topped the consensus estimate of $1.30 by 25.4% and increased 10.1% from the year-ago period.
Jacobs’ revenues totaled $3.52 billion, which surpassed the consensus mark by 4.9% and grew 3.7% year over year. The improvement was driven by healthy segmental performance. Backlog at fiscal 2020-end totaled $23.8 billion, up 5.5% from a year ago.
Revenues from the Critical Mission Solutions segment of $1.33 billion increased 2.2% year over year. Backlog at quarter-end was $9.1 billion, up 7.6% year over year.
Revenues from the People & Places Solutions segment totaled $2.19 billion, which increased 4.7% year over year. Backlog at quarter-end was $14.7 billion, up 4.3% year over year.
For the quarter under review, adjusted gross profit decreased 0.5% year over year to $665.4 million.
Adjusted operating margin contracted 31 bps to 9.11%.
Balance Sheet & Cash Flow
At fiscal 2020-end, Jacobs had cash and cash equivalents of $862.4 million, up from $631.1 million at fiscal 2019-end. Long-term debt balance increased to $1.68 billion at the end of fiscal 2020 from $1.2 billion at fiscal 2019-end.
The company provided $806.8 million cash for operating activities in fiscal 2020 compared with $366.4 million of cash used in operating activities a year ago. It generated free cash flow of $688.6 million in fiscal 2020.
Fiscal 2020 Highlights
Revenues of $13.6 billion grew 6.5% and 2.5% on a pro-forma basis. Adjusted earnings were $5.48 per share, up 9% year over year. Adjusted operating margin expanded 9 bps to 8.76%. Adjusted EBITDA came in at $1.1 billion, up 7.1% year over year.
Fiscal 2021 Guidance
Jacobs expects adjusted EBITDA between $1,055 million and $1,155 million. Also, it anticipates adjusted earnings within $5.20-$6.00 per share. Jacobs has launched the Focus 2023 initiative, with expected benefits of more than $200 million versus fiscal 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
Currently, Jacobs Engineering has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile 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.
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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