Media-shy investment firm PRIMECAP Management (Trades, Portfolio) revealed earlier this week it curbed its stake in Jacobs Engineering Group Inc. (J, Financial), impacting the equity portfolio by 0.02%.
The California-based firm, which was founded in 1983, manages the Odyssey Funds. It seeks to provide long-term capital appreciation by investing in companies with stronger growth potential than their valuations suggest and that trade at reasonable prices.
According to GuruFocus Real-Time Picks, a Premium feature based on 13D and 13G filings, Primecap reduced its position in the engineering company by 2.5% on May 31, selling 164,745 shares. The stock traded for an average price of $140.09 per share on the day of the transaction.
Primecap now holds 6.4 million shares total, accounting for 0.68% of the equity portfolio. Established in the fourth quarter of 2009, GuruFocus estimates the firm has gained 76.58% on the investment so far.
Headquartered in Dallas, the company, which provides engineering, design, procurement, construction and maintenance services, among others, to the water, transportation, health care, technology and chemical sectors, has a $16.98 billion market cap; its shares were trading around $129.87 on Friday with a price-earnings ratio of 45.99, a price-book ratio of 2.80 and a price-sales ratio of 1.20.
The GF Value Line suggests the stock is modestly overvalued currently based on historical ratios, past financial performance and future earnings projections.
The GF Score of 84 out of 100 also suggests it has good outperformance potential going forward. It received high marks for momentum, profitability and growth, a middling rank for financial strength and a low grade for GF Value.
On May 2, Jacobs Engineering reported its second-quarter 2022 results. It posted adjusted earnings of $1.72 per share on $3.8 billion in revenue. Both figures were up from the prior-year period.
In a statement, Chair and CEO Steve Demetriou noted the company has seen "accelerating demand across all end markets, with incremental opportunities to scale in the areas of Climate Response, Consulting & Advisory and Data Solutions.”
“These compelling opportunities are reflected in our results with strong bookings performance during the first half of the fiscal year and 9% backlog growth in the second quarter, which positions us well for the remainder of fiscal 2022,” he said. "Executing on our new strategy begins with our people, by unleashing a culture that combines inclusion, innovation and inspiration to enable the delivery of cutting-edge solutions for our clients."
The company also declared a quarterly dividend of 23 cents per share on April 28. It will be paid on June 24 to shareholders of record as of May 27.
Jacobs scored a 6 out of 10 rating for financial strength from GuruFocus. Despite the company issuing new long-term debt in recent years, it is at a manageable level due to adequate interest coverage. The Altman Z-Score of 2.8, however, indicates it is under some pressure since assets are building up at a faster rate than revenue is growing. The company has also recorded losses in operating income in recent years.
The company’s profitability fared better with an 8 out of 10 rating, driven by operating margin expansion, returns on equity, assets and capital that outperform over half of its competitors and a moderate Piotroski F-Score of 6 out of 9, meaning conditions are typical for a stable company. Jacobs also has a predictability rank of one out of five stars. According to GuruFocus research, companies with this rank return an average of 1.1% annually over a 10-year period.
Of the gurus invested in Jacobs Engineering, Primecap has the largest stake with 4.99% of its outstanding shares. Ruane Cunniff (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Joel Greenblatt (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Chuck Royce (Trades, Portfolio) and Prem Watsa (Trades, Portfolio) also own the stock.
Portfolio composition and performance
Nearly 60% of the firm’s $132.58 billion equity portfolio, which the 13F filing showed was composed of 340 stocks as of the end of the first quarter, is invested in the technology and health care sectors. Industrials make up 12%.
Other industrials stocks making up Primecap’s portfolio as of March 31 included FedEx Corp. (FDX, Financial), Southwest Airlines Co. (LUV, Financial), AECOM (ACM, Financial), United Airlines Holdings Inc. (UAL, Financial) and Delta Air Lines Inc. (DAL, Financial).
GuruFocus data shows the firm returned 21.81% in 2021, slightly underperforming the S&P 500’s 28.7% return.
Investors should be aware that 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.