We reaffirmed our long-term Neutral recommendation on
Jacobs Engineering Group Inc.
) on May 15, 2013, as risk reward remains fairly balanced for the
stock at this juncture.
Why the reiteration?
Jacobs' earnings per share of 80 cents in fiscal second
quarter of 2013, reported on Apr 30, missed the Zacks Consensus
Estimate of 82 cents. However, Jacobs' earnings improved 23.1%
year over year.
Jacobs generated revenues of $2.83 billion in the fiscal
quarter, an increase of 4.9%. The revenues missed the Zacks
Consensus Estimate of $2.94 billion by 3.6%.
Since the announcement of the results, estimates have moved in
either direction for fiscal 2013 and 2014. The current consensus
estimate for fiscal 2013 rests at $3.30, a decrease of 1.0% over
the last 30 days. For fiscal 2014, the current estimate decreased
by a cent to $3.75 per share, over the same time frame.
In the coming quarters, growth in infrastructure, mining and
minerals, refining, oil & gas and chemicals are expected to
augment both earnings and revenue. Jacobs has also been
successful in gaining the confidence of its customers, inducing
them to trade again with the company, resulting in a high
proportion of the business earned through repeat customers. Per
the company, around 65% of the work obtained is through long-term
relationship, which is illustrated in the 94% repeat business
done in the fiscal second quarter of 2013.
However, Jacobs' dependence on third party suppliers is taken
as a negative, since fund crisis among such dealers may even lead
to discontinuation of their businesses. Under such circumstances,
the company may fall prey to deferred project delivery, loss of
goodwill or even order cancellation by clients due to the
Also, Jacobs' business operations outside the U.S. make the
company prone to foreign currency risks and difficult economic
and political scenario in the country of operations.
Other Stocks to Consider
Jacobs currently carries a Zacks Rank #3 (Hold). Other stocks
to watch out for in the construction industry are
Michael Baker Corporation
), carrying a Zacks Rank #1 (Strong Buy); while,
Harris & Harris Group, Inc.
Quanta Services, Inc.
), carry a Zacks Rank #2 (Buy).
BAKER (MICHAEL) (BKR): Free Stock Analysis
JACOBS ENGIN GR (JEC): Free Stock Analysis
QUANTA SERVICES (PWR): Free Stock Analysis
HARRIS & HARRIS (TINY): Get Free Report
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