Will Jacobs (JEC) Beat Q4 Earnings on New Contract Wins? - Analyst Blog
Jacobs Engineering Group Inc. ( JEC ) is scheduled to release fourth-quarter results after the bell on Nov 17, 2014. The company delivered a positive earnings surprise of 5.00% in the last reported quarter. However, Jacobs lagged the Zacks Consensus Estimate in three of the last four trailing quarters with an average miss of 2.27%. Let's figure out how things are shaping up before the fourth-quarter earnings announcement.
Key Factors to Influence Q4 Results
Jacobs is one of the most popular technical services providers in the contemporary world. It shares high brand value in the industry and is well known for its non-imitable product and service offerings in the market. In September, Jacobs announced a 12-month extension of its existing contract with EDF Energy Nuclear Generation Limited. The company aims to improve its organic business status with the help of such lucrative deals. Additionally, it is pursuing inorganic expansion through acquisition of various prominent companies such as Federal Network Systems, Eagleton Engineering and FMHC Corporation.
However, Jacobs' business faces certain issues at present. The maintenance and construction sites of the company are subject to risks relating to safety issues. Any adverse happenings at these sites might generate severe financial losses for the company. Furthermore, negative impact from uncertainties in the financial and credit market might offset the benefits of the company's inorganic growth strategies. Also, revenue and profit margins of Jacobs are highly sensitive to the currency and exchange rate fluctuations in the market. Low entry barriers in engineering, architectural, consulting and designing market segments have escalated threats of market rivalry for Jacobs. Poor competency or business inefficiencies in the long run might diminish the market share and profitability of Jacobs from such business fragments. .
Though the company is trying to improve its trade on the back of new contracts but the benefits of such deals might not bear fruit in the fourth quarter. Our proven model does not conclusively show 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 of #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. That is not the case here as we will see below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at 0.00%. This indicates in-line earnings for the stock.
Zacks Rank: Jacobs' Zacks Rank #4 (Sell), when combined with a 0.00% ESP, makes surprise predictions difficult. We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum. Note that stocks with a Zacks Ranks of #1 (Strong Buy), #2 (Buy) and #3 (Hold) have a significantly higher chance of beating earnings.
Other Stocks to Consider
Some better-ranked stocks in the industry include Apple Inc. ( AAPL ), Impax Laboratories Inc. ( IPXL ) and AU Optronics Corp. ( AUO ). Each of these three companies currently sports a Zacks Rank #1 (Strong Buy).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.