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Investing.com -- S&P Global Ratings has revised its outlook for Jacobs Engineering Group Inc. to positive from stable, while affirming the company’s ratings.
The rating agency expects Jacobs to maintain its net leverage target of 1x-1.5x (approximately 1.7x-2.2x on an S&P Global Ratings-adjusted basis) despite ongoing shareholder returns. S&P forecasts leverage in the high-1x range even with continued shareholder remunerations.
Jacobs used proceeds from a recent divestiture to reduce debt and refinance term loans, extending maturities to 2027. The company also accelerated share repurchases, using its revolver to buy back approximately $653 million of shares.
While free operating cash flow is expected to be subdued this year due to higher working capital outflows and one-time divestiture costs, S&P anticipates improvement next year as restructuring expenses diminish and interest rates decrease.
The company is positioned for organic growth, supported by aging global infrastructure, government spending, and a substantial backlog of $22.2 billion. These factors are expected to drive stable top-line improvement in the low- to mid-single-digit percentages over the next two years.
S&P projects momentum in Jacobs’ Infrastructure and Advanced Facilities segment, fueled by water services, pharmaceutical developments, data center investments, energy transition projects, and critical infrastructure demand.
Potential long-term headwinds include modifications to energy tax provisions affecting wind and solar projects, and possible impacts on government revenue from federal cost-cutting initiatives under President Donald Trump.
Since its divestiture, Jacobs has streamlined operations and reduced its concentration to the U.S. government. The company has invested in technology and AI integration, leveraged global delivery centers in lower-cost regions, and integrated PA Consulting into its core business. These initiatives are expected to improve margins by 70 basis points over the next two years.
The positive outlook reflects S&P’s expectation that Jacobs will continue expanding revenue and margins, maintaining leverage below 2x and strengthening funds from operations to debt above 45% in the next year.
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