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Wednesday, Baird made a positive adjustment to Jacobs Engineering Group Inc. (NYSE:J) shares, increasing the company's price target to $149 from $147, while the Outperform rating remains in place. The firm highlighted the company's performance in the first quarter post-spin, which was seen as better than the stock's reaction suggested.
The quarter was described as "surprisingly clean," and initial Fiscal Year 2025 guidance was consistent with framework expectations, including mid-single to high-single digit organic growth and over 100 basis points of margin expansion. The firm anticipates a likely buyback-heavy free cash flow distribution.
The analyst noted a significant 22% increase in backlog, with a book-to-bill ratio of 1.67x, all of which was organic. This increase is indicative of a longer-than-usual duration for several larger projects, which provides visibility into the company's future performance. The sectors of infrastructure, water, and life sciences were pointed out as areas with strong momentum.
Looking ahead to Fiscal Year 2025, Jacobs Engineering is expected to undergo some restructuring, which is projected to taper off in the second half of the fiscal year. The firm's commentary suggested that the company's trajectory towards a cleaner and simpler operational model, coupled with its strategy of returning significant capital to shareholders, stands as a key reason for maintaining an Outperform rating on the stock.
Baird's revised price target reflects confidence in Jacobs Engineering's ability to execute its growth strategy and manage its capital effectively, especially in light of the robust backlog and positive market conditions in its key business segments. The updated target also takes into account the company's guidance and the expectation of continued financial discipline and shareholder returns.
In other recent news, Jacobs Solutions Inc. reported lower than anticipated fourth-quarter results, with adjusted earnings per share of $1.37, falling short of analyst estimates of $1.82.
Revenue was also lower than expected at $3 billion, compared to the consensus forecast of $4.5 billion, but showed a growth of 4.4% year over year. Despite the earnings miss, the company saw a strong backlog growth of 22.5% year over year to $21.8 billion, indicating a robust demand.
CEO Bob Pragada stated that the demand in their end markets remains strong, driving higher gross profit across the business. Looking ahead, Jacobs' fiscal 2025 guidance estimates adjusted earnings per share to be between $5.80 and $6.20, which is slightly lower than the analyst consensus of $6.15. The company also expects mid-to-high single digit revenue growth and an adjusted EBITDA margin of 13.8% to 14%.
In other company news, Jacobs recently completed the spin-off of its government services businesses, a move that is expected to allow it to operate as a more focused company. These are among the recent developments for Jacobs Solutions Inc.
InvestingPro Insights
Recent data from InvestingPro adds depth to Baird's positive outlook on Jacobs Engineering Group Inc. (NYSE:J). The company's market capitalization stands at $16.59 billion, reflecting its substantial presence in the engineering and construction sector. Jacobs' P/E ratio of 29.21 suggests investors are pricing in expectations for future growth, aligning with Baird's optimistic stance.
InvestingPro Tips highlight that Jacobs has raised its dividend for 6 consecutive years, demonstrating a commitment to shareholder returns that complements Baird's expectation of buyback-heavy free cash flow distribution. This is further supported by a dividend growth of 11.54% over the last twelve months, although the current yield is modest at 0.87%.
The company's financial health appears solid, with InvestingPro data showing a gross profit of $2.83 billion and an EBITDA of $1.15 billion for the last twelve months. However, investors should note that revenue growth has declined by 29.67% over the same period, which may explain why 3 analysts have revised their earnings downwards for the upcoming period.
Despite recent headwinds, with the stock taking a significant hit over the last week (-10.54% total return), Jacobs' year-to-date price total return remains positive at 24.21%. This volatility underscores the importance of Baird's analysis of the company's strong backlog and strategic positioning in key growth sectors.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips that could provide valuable insights into Jacobs Engineering's investment potential.
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