Earnings Preview: Jacobs Engineering (JEC)

Jacobs Engineering Group Inc. (JEC) is scheduled to release its third-quarter 2010 results on July 27. The Zacks Consensus Estimate presently stands at 63 cents per share, 13 cents below the year-ago level of 76 cents, but a penny above the second quarter 2010 EPS of 62 cents. For fiscal 2010, the Zacks Consensus Estimate is currently pegged at $2.46, which is within management’s expectation of $2.15 to $2.65.

In the second quarter of fiscal 2010, Jacobs reported an EPS of 62 cents, which surpassed the Zacks Consensus Estimate of 58 cents. However, it was below 88 cents recorded in the second quarter of the previous year. Second quarter net income was $77.5 million, down from $109.3 million in the year-ago quarter.
Revenues declined 13.1% year-over-year to $2,587.0 million from $2,975.5 million during the same period of fiscal 2009. The decline was attributable to poor economic conditions. Revenues from Technical Professional Services dropped 3.4% while Field Services slipped 21.5%.

Agreement of Analysts

For the third quarter of 2010, fiscal 2010 and fiscal 2011, out of 20 analysts covering the stock, only one analyst have moved its estimates downward over the last 30 days, with none moving up. The decline can be attributed to poor economic conditions.

Magnitude of Estimate Revisions

Although, one analyst has reduced his estimate, the magnitude for the immediate quarter and fiscal 2010 did not get affected based on the marginal downward step taken by him. However, for fiscal 2011, estimates went down by a penny to $2.74 from $2.75 per share.

Our Recommendation

We believe that Jacobs’ track record of contract wins will help it to perform well in future. Another reason for Jacobs to sustain in these difficult market conditions is its liquidity. The company has maintained a high level of liquidity, with a net cash position of $743 million compared with $240.4 million at the end of the first quarter of fiscal 2010.

Jacobs’ ongoing acquisition strategy will help strengthen its position in the future. However, the very cyclical nature of its business, which is subject to significant fluctuations based on a wide variety of uncontrollable factors, hinders any further upgrade of the stock. Jacobs also faces a strong competition risk. Thus, our long-term recommendation for the stock remains Neutral in line with the Zacks #3 Rank, which implies a short-term Hold recommendation.

JACOBS ENGIN GR (JEC): Free Stock Analysis Report
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