Jacobs Solutions (J) Up 1.8% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Jacobs Solutions (J). Shares have added about 1.8% 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 Solutions 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 catalysts.

Jacobs Misses Q4 Earnings Estimates, Gives Solid '24 View

Jacobs reported mixed results for fourth-quarter fiscal 2023 (ended Jun 30, 2023), with earnings missing the Zacks Consensus Estimate but revenues surpassing the same.

Earnings and revenues increased on a year-over-year basis, backed by solid performance across the portfolio. It also reported a solid backlog thanks to a robust opportunity set, led by People and Places Solutions’ operating profit growth of nearly 12% year over year.

Earnings & Revenue Discussion

For the reported quarter, adjusted earnings of $1.90 per share lagged the consensus estimate of $2.02 by 5.9%. The reported figure was up 5.6% from the year-ago figure of $1.80 per share.

Jacobs’ revenues totaled $4.29 billion, which topped the consensus mark of $4.14 billion by 3.7% and grew 10.5% year over year. Adjusted net revenues were up 8.9% year over year (7.3% in constant currency).

Adjusted operating profit grew 10.3% to $383 million from a year ago. The adjusted operating margin of 11% expanded by 14 basis points (bps). Adjusted EBITDA rose 9.6% to $384 million and adjusted EBITDA margin improved 10 bps year over year. The backlog at the end of fiscal 2023 amounted to $29.1 billion, up 4% from a year ago.

Segment Details

Revenues from the CMS segment of $1.24 billion increased by 6.9% year over year. The segment’s operating profit was up 26.4% to $103 million from a year ago, with a margin expansion of 128 bps to 8.3%. The backlog at the fiscal fourth-quarter end was $8.264 billion, up from $7.622 billion a year ago.

Revenues from the People & Places Solutions or P&PS segment totaled $2.51 billion, which increased by 12.7% year over year. Net revenues (excluding Pass-Through Revenue) were up by 10.5% year over year. Its operating profit grew 11.7% from the prior-year quarter to $256 million and the margin rose by 16 bps to 15%. The backlog at the quarter’s end was $17.35 billion, up from $17.01 billion a year ago.

Revenues from the Divergent Solutions segment totaled $251.9 million, which grew 4% year over year. Divergent Solutions’ net revenues were up 2.8% year over year. Segment operating profit improved 57.9% from the prior-year quarter to $24 million. Its operating margin of 10.1% also grew 350 bps year over year. The backlog at the quarter’s end was $3.183 billion, up from $2.957 billion a year ago.

PA Consulting generated $288.2 million in revenues, up 13.3% from the year-ago quarter’s period. Its operating profit was $59 million, up 20.5% from $49 million a year ago. Its operating margin improved by 122 bps to 20.6%. The quarter-end backlog amounted to $311 million, up from $269 million a year ago.

Fiscal 2023 Highlights

Total revenues of $16.35 billion grew 10% year over year. Adjusted net revenues grew 7% year over year and 8.8% at constant currency.

Adjusted EPS was $7.20, an increase of 3.9% from fiscal 2022. Adjusted EBITDA grew 5.3% to $1.44 billion and 7% at constant currency. Adjusted EBITDA margin was 10.8% year over year.

Balance Sheet & Cash Flow

At the fiscal 2023 end, Jacobs had cash and cash equivalents of $926.6 million, down from $1,140.5 million at the fiscal 2022 end. Long-term debt decreased to $2.81 billion at the fiscal 2023-end from $3.36 billion as of fiscal 2022-end. Net cash provided by operating activities totaled $974.8 million in the quarter compared with $474.7 million in the year-ago quarter. Free cash flow was $837.3 million during the year.

Fiscal 2024 Guidance

Jacobs expects adjusted EBITDA between $1,530 million and $1,600 million, up 9% from the previous year, considering the mid-point. It anticipates adjusted earnings within $7.70-$8.20 per share, up 10%year-over-year at the mid-point.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -19.36% due to these changes.

VGM Scores

Currently, Jacobs Solutions has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Jacobs Solutions has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

Jacobs Solutions is part of the Zacks Technology Services industry. Over the past month, Gen Digital (GEN), a stock from the same industry, has gained 7.6%. The company reported its results for the quarter ended September 2023 more than a month ago.

Gen Digital reported revenues of $955 million in the last reported quarter, representing a year-over-year change of +27.7%. EPS of $0.47 for the same period compares with $0.45 a year ago.

For the current quarter, Gen Digital is expected to post earnings of $0.50 per share, indicating a change of +11.1% from the year-ago quarter. The Zacks Consensus Estimate has changed -1.1% over the last 30 days.

Gen Digital has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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