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Jacobs Solutions (J) Up 1.2% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Jacobs Solutions (J). Shares have added about 1.2% 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 the most recent earnings report in order to get a better handle on the important drivers.

Jacobs Beats on Q2 Earnings & Revenues, to Spin Off CMS Unit

Jacobs reported second-quarter fiscal 2023 (ended Mar 31, 2023) results, with earnings and revenues surpassing their respective Zacks Consensus Estimate and rising year over year. The results reflect solid performance across the portfolio, led by People and Places Solutions operating profit growth of 21% year over year.

Importantly, the company announced its intent to separate the Critical Mission Solutions (“CMS”) business. This marks one of its strategic portfolio transformation initiatives to create higher growth and margin business portfolio focused on critical infrastructure and sustainability. Jacobs expects to complete the transaction in the second half of fiscal 2024.

Earnings & Revenue Discussion

For the reported quarter, adjusted earnings of $1.81 per share topped the consensus estimate of $1.78. Also, the reported figure was up 5% from the year-ago period.
 
Jacobs’ revenues totaled $4.1 billion, which topped the consensus mark of $4 billion and grew 6.4% year over year. Net revenues were up 5.2% year over year and up 8% in constant currency.

Backlog at the end of second-quarter fiscal 2023 amounted to $29 billion, up 4% from a year ago.

Segment Details

Revenues from the CMS segment of $1.19 billion increased 5% year over year. Yet, the segment operating profit of $93.9 million was down from $94.6 million reported a year ago. The backlog at the fiscal second-quarter end was $8.14 billion, up from $7.51 billion a year ago.

Revenues from the People & Places Solutions or P&PS segment totaled $2.35 billion, which inched up 8.4% year over year. Net revenues (excluding Pass Through Revenue) were up 7.3% year over year. Segment operating profit grew 20.5% from the prior-year quarter to $232.2 million. The backlog at the quarter end was $17.6 billion, up from $16.9 billion a year ago.

Revenues from the Divergent Solutions segment totaled $241.2 million, which grew 0.8% year over year. Divergent Solutions net revenues were down 2.8% year over year. Segment operating profit improved 45.8% from the prior-year quarter to $24.9 million. The backlog at the quarter end was $3 billion, down from $3.1 billion a year ago.

PA Consulting generated $301 million in revenues in the fiscal second quarter, up from the year-ago quarter’s figure of $294.4 million. Segment operating profit was $65.6 million, down from $68.3 million a year ago. Quarter-end backlog amounted to $319 million, up from $269 million a year ago.

Margins Profile

Total segment operating profit grew to $416.6 million from $372.7 million a year ago.

Balance Sheet & Cash Flow

At the fiscal second-quarter end, Jacobs had cash and cash equivalents of $1,223.3 million, up from $1,140.5 million at the fiscal 2022-end (Sep 30, 2022). Long-term debt slightly increased to $3.4 billion at the fiscal second-quarter end from $3.36 billion at the fiscal 2022-end.

Net cash provided by operating activities totaled $132 million in the quarter compared with $124.6 million in the year-ago quarter.

Fiscal 2023 Guidance Narrowed

Meanwhile, Jacobs now expects adjusted EBITDA between $1,420 million and $1,470 million and adjusted earnings within $7.25-$7.45 per share. Earlier, the company had expected adjusted EBITDA between $1,400 million and $1,480 million and adjusted earnings within $7.20-$7.50 per share.

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How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Jacobs Solutions has a nice Growth Score of B, 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Jacobs Solutions has a Zacks Rank #3 (Hold). We expect an in-line 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, Block (SQ), a stock from the same industry, has gained 15.1%. The company reported its results for the quarter ended March 2023 more than a month ago.

Block reported revenues of $4.99 billion in the last reported quarter, representing a year-over-year change of +26%. EPS of $0.40 for the same period compares with $0.18 a year ago.

Block is expected to post earnings of $0.37 per share for the current quarter, representing a year-over-year change of +105.6%. Over the last 30 days, the Zacks Consensus Estimate has changed -6.6%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Block. Also, the stock has a VGM Score of B.

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