Jacobs (J) Unveils Divergent Solutions Unit & 3-Year Strategy

Jacobs Engineering Group Inc.’s J shares moved up 0.9% in the after-hour trading session on Mar 3 after it announced its intention to form a new business unit — Divergent Solutions — and released fiscal 2022-2024 growth targets.

Jacobs' new strategy is based on an extensive evaluation of global trends, capabilities and markets to understand the largest opportunities, projected spend and growth rates. The strategy resulted in the identification of three growth accelerators: Climate Response, Consultancy & Advisory and Data Solutions. These accelerators open up significant high-value growth opportunities with existing and new clients as well as provide the opportunity for future capital deployment.

Divergent Solutions Unit

The Divergent Solutions unit, which will directly align with Jacobs’ Data Solutions growth accelerator, will serve as the core foundation for developing and delivering innovative, next-generation cloud, cyber, data and digital technologies. The move will increase focus and momentum on growth plans by creating scale in the skills and business approaches necessary to enhance value for the clients.

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Currently, it will support Jacobs’ Critical Mission Solutions (CMS) and People & Places Solutions (P&PS) lines of business for the rest of fiscal 2022. Further, it will act as a fully-reportable unit since first-quarter fiscal 2023.

Three-Year Growth Targets (Fiscal 2022 to 2024)

In addition to the new growth strategies, this leading consulting firm provided certain three-year financial targets. Investors should note that these targets do not include any impact from future acquisitions.

Jacobs expects revenue growth of 7-10%, including 6-9% contribution from each CMS and P&PS and 12-15% from PA Consulting. Adjusted operating profit is anticipated to rise in double digits, where CMS and P&PS will witness more than 10% growth and PA Consulting will see 12-15% improvement. Adjusted operating margin is likely to expand 60-100 basis points (bps), of which CMS will add 25-100 bps and P&PS will add 100-150 bps.

Meanwhile, Jacobs intends to achieve an adjusted EPS of $10 in fiscal 2025. Also, it anticipates P&PS to benefit from the recently passed Infrastructure Investment and Jobs Act, CMS to execute on robust sales pipeline, growth in PA Consulting, a 23.5% effective adjusted tax rate, modest capital deployment and net leverage of more than 0.5x adjusted EBITDA. Including the impact of capital deployment, the company sees $11-$12 adjusted EPS for fiscal 2025.

Jacobs’ chair and CEO Steve Demetriou, said, "Our enhanced and strong business portfolio enables us to take advantage of strong secular trends and significant market opportunities to boldly move the company forward into 2025 – and beyond.”

The company reiterated its fiscal 2022 adjusted EBITDA and adjusted EPS guidance of $1,370-$1,450 million and $6.85- $7.45, respectively.

J’s shares have gained 10.7% in a year compared with the Zacks Engineering - R and D Services industry’s 11.9% rally. Jacobs and other industry players like Fluor Corporation FLR, AECOM ACM and Quanta Services, Inc. PWR are witnessing labor-related medical costs, IT-related investment costs and other investments expenses.

Zacks Rank

Currently, Jacobs carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

A Brief Overview of the Above-Mentioned Stocks

Fluor — a Zacks Rank #1 company — is gaining from the "Building a Better Future" initiative, focused on enhancing markets outside the traditional oil and gas sector, fair and balanced commercial deals, financial discipline and high-performing business culture. It made significant progress toward strategic goals that comprise the reduction of outstanding debt by 30% and identified ways for more than $150 million in annual cost savings.

Fluor’s earnings for 2022 are expected to grow 42.6%. FLR’s earnings have gained in the past seven days.

AECOM — a Zacks Rank #2 (Buy) company — is a leading solutions provider for supporting professional, technical and management solutions for diverse industries across end markets. The company has been continuously focusing on delivering industry-leading margins and unlocking capital to invest in growth as well as innovation. Also, focus on higher-margin and lower-risk Professional Services businesses bodes well.

AECOM’s earnings for fiscal 2022 are expected to grow 20.6%. That said, ACM’s earnings have increased 1.5% in the past 30 days.

Quanta Services — a Zacks Rank #3 company — is set to deliver a resilient performance in 2021 and beyond despite a challenging environment. It is benefiting from a three-pronged growth strategy and strong margins from the Electric Power Infrastructure segment. Focus on the base business via supporting long-term programmatic spending of utilities and participating in the development of infrastructure that supports renewables and technology deployments such as 5G as well as electric vehicles will drive growth. It is to be noted that 80-90% of revenues are derived from the utility, communications and a few pipeline and industrial infrastructure services, which remain strong.

Quanta Services’ earnings for 2022 have moved north in the past seven days. PWR’s earnings for 2022 are expected to advance 25.8%.

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