Large-scale Projects In Australia, Europe, And The Middle East Will Reinforce Global Market Presence

Key Takeaways

• Strategic expansion in Water, Environmental Services, and Critical Infrastructure drives Jacobs' future revenue and project pipeline.
  
• Share repurchase strategies and operational efficiencies aim to bolster EPS and margins.
  
• Potential earnings volatility from Amentum investment and market risks, combined with sector softness and foreign exchange threats, may impact revenue and growth.

Catalysts

Engages in the infrastructure and advanced facilities, and consulting businesses in the United States, Europe, Canada, India, Asia, Australia, New Zealand, the Middle East, and Africa.

• Jacobs Solutions anticipates future revenue growth through its expanding backlog, which increased by approximately 19% year-over-year, fueled by double-digit growth across major segments such as Water and Environmental Services, Critical Infrastructure, and Life Sciences, signaling strong demand and project wins ahead. This will likely impact revenue positively.
  
• Strong growth in adjusted EBITDA, which rose by 24% year-over-year in the first quarter, indicates operational efficiencies and solid business execution, likely benefiting net margins as the company continues to improve its adjusted EBITDA margin, projected to reach 13.8% to 14% for the full fiscal year.
  
• Jacobs Solutions’ strategic focus on consulting at the early phases of projects enhances project visibility and long-term engagement with clients, potentially leading to higher-margin contributions across all phases of the project lifecycle, supporting future net margins positively.
  
• The company's aggressive share repurchase activities, exemplified by the $1.5 billion repurchase authorization, and planned disposition of its stake in Amentum, should enhance earnings per share (EPS) by reducing the share count and strengthening its financial position.
  
• Projected international infrastructure growth, notably in regions like Australia, Europe, and the Middle East, bolstered by large-scale projects and consortium partnerships, is expected to drive international revenue growth, reinforcing Jacobs' global market presence.

Jacobs Solutions Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Jacobs Solutions's revenue will grow by 6.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.0% today to 6.7% in 3 years time.
• Analysts expect earnings to reach $935.1 million (and earnings per share of $8.2) by about March 2028, up from $459.9 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $724 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.8x on those 2028 earnings, down from 32.6x today. This future PE is greater than the current PE for the US Professional Services industry at 21.7x.
• Analysts expect the number of shares outstanding to decline by 2.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.93%, as per the Simply Wall St company report.

Jacobs Solutions Future Earnings Per Share Growth

Risks

• The negative impact on GAAP EPS from the mark-to-market loss and expenses associated with the investment in Amentum could continue to affect earnings and financial metrics if not mitigated effectively. This points to potential volatility in earnings.
  
• The softness noted in the Advanced Manufacturing sector, and associated declines, could impact revenue growth if the anticipated uptick in the second half of the year does not materialize.
  
• Questions surrounding the political environment and regulation changes, which were noted as ongoing concerns, could impact project wins and timelines, affecting future revenue and backlog growth.
  
• Margins are currently benefiting from cost-control measures and timing of holiday revenues, suggesting vulnerabilities if cost management does not continue to succeed or if there are shifts in workload timing.
  
• Foreign exchange risks, particularly related to potential strengthening of the dollar, are noted as a potential threat to revenue and operating income, exposing the company to adverse currency translation effects that could impact revenues.

Valuation

• The analysts have a consensus price target of $153.298 for Jacobs Solutions based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $176.0, and the most bearish reporting a price target of just $134.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $13.9 billion, earnings will come to $935.1 million, and it would be trading on a PE ratio of 22.8x, assuming you use a discount rate of 6.9%.
• Given the current share price of $122.5, the analyst price target of $153.3 is 20.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.