Jacobs Engineering (JEC) Troubled by Mixed Q4 Results - Analyst Blog

On Dec 9, 2014, we issued an updated research report on the premium technical services company Jacobs Engineering Group Inc. (JEC). The company is one of the leading providers of professional, technical and construction services to industrial, commercial and governmental clients. It has a wide global network of branches, generating a considerable number of employment opportunities around the world.

Bearish Outcomes  

Jacobs's earnings for fiscal 2014 were adversely impacted by restructuring activities in the third and fourth quarter. Moreover, in the fourth quarter, revenues missed the Zacks Consensus Estimate of $3.35 billion. The top-line suffered due to a 10.8% year-over-year decline in the Field Services revenues.

The maintenance and construction sites of the company are subject to certain safety-related risks. Any adverse happenings at these sites might generate severe financial losses for the company. Also, adverse impact from uncertainties in the financial and credit market might offset the benefits of the company's inorganic growth strategies. At the same time, 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. The company derives a large chunk of its revenues from the U.S. Federal agencies. However, the same are exposed to variations due to regulations, restrictions and other uncertainties. These contracts are also exposed to sequestration. With high revenues coming in from the government, the company would be badly hit if a contract is pulled back or postponed.

Scopes of Improvement

Jacobs has won new contracts from the Los Angeles County Department of Public Works and Eielson Air Force Base of Alaska in Oct 2014. The company has announced the extension of its business deal with the EDF Energy Nuclear Generation Limited by 12 months. Such unmatched contract wins sustain the organic growth prospects of the company. Expenses incurred may initially affect the margins, but over time such losses would be offset by returns accrued from the investments.

In fiscal 2014, Jacobs had incurred lofty acquisition expenses, besides buying 1.5 million shares worth $78 million. Considering the funds allotted for such growth programs, the company's total fund accumulation in the quarter was actually good. Beneficial effects of these investments can help improve the company's earnings and revenue in the long run.

With a market capitalization of $5.80 billion, Jacobs currently holds a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry include AECOM Technology Corporation (ACM), Willdan Group, Inc. (WLDN) and RealD Inc. (RLD). While both AECOM Technology and Willdan Group sport a Zacks Rank #1 (Strong Buy), RealD Inc. carries a Zacks Rank #2 (Buy).