Jacobs Solutions Inc (J, Financial) recently experienced a notable daily loss of -8.69%, adding to a three-month decline of -7.86%. Despite these fluctuations and an Earnings Per Share (EPS) of 5.8, investors are keen to understand: is Jacobs Solutions fairly valued? This article delves into the valuation analysis of Jacobs Solutions, providing investors with a comprehensive look at its intrinsic worth.
Company Introduction
Jacobs Solutions is a global powerhouse in the realms of engineering, design, procurement, construction, and maintenance services, alongside cyber engineering and security solutions. Serving an array of sectors like water, transportation, healthcare, and technology, the company boasts a workforce of approximately 60,000. With a fiscal 2022 revenue of $14.9 billion and $1.3 billion in adjusted operating income, Jacobs Solutions stands as a significant player. At a current price of $125.08 per share and a market cap of $15.70 billion, the question of whether the stock is trading at a fair value is more pertinent than ever. The comparison between the stock price and the GF Value of $131.87 will shed light on this inquiry.
Summarize GF Value
The GF Value is a unique metric that estimates the intrinsic value of a stock by considering historical trading multiples, an internal adjustment factor for past performance and growth, and future business performance projections. Jacobs Solutions (J, Financial) is currently deemed fairly valued according to this methodology. If a stock trades significantly above the GF Value Line, it may be overvalued with potentially poor future returns. Conversely, trading below the line suggests undervaluation and potentially higher future returns. Given its market cap of $15.70 billion and the current share price, Jacobs Solutions (J) aligns with its GF Value, indicating a fair valuation and suggesting that its stock's long-term return may mirror the company's growth rate.
Financial Strength
Investors must consider a company's financial strength to avoid the high risk of permanent capital loss. Indicators such as the cash-to-debt ratio, which for Jacobs Solutions is 0.28, and interest coverage, help assess this aspect. Although the cash-to-debt ratio ranks lower than 68.61% of companies in the Construction industry, Jacobs Solutions' overall financial strength is fair, with a score of 6 out of 10.
Profitability and Growth
Profitability is a key indicator of reduced risk and potential performance, with Jacobs Solutions demonstrating a solid track record; it has been profitable for 10 out of the past 10 years. The company's operating margin of 6.94% surpasses 60.99% of its peers in the Construction industry, underscoring its profitability. Additionally, Jacobs Solutions' growth is noteworthy. The company's average annual revenue growth rate is 8%, ranking better than 64.12% of its industry counterparts. Its 3-year average EBITDA growth rate is an impressive 31.5%, outperforming 84.88% of the Construction industry.
ROIC vs. WACC
An analysis of a company's profitability can be further refined by comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Jacobs Solutions' ROIC is 8.08, slightly below its WACC of 8.69. This comparison suggests that while the company is generating cash flow relative to its invested capital, it's doing so at a rate just below the cost of its capital investments.
Conclusion
Overall, Jacobs Solutions (J, Financial) is regarded as fairly valued. With fair financial health and strong profitability, coupled with growth rates surpassing the majority in the Construction industry, Jacobs Solutions presents itself as a solid investment. For a more in-depth look at the financials of Jacobs Solutions, interested parties can explore the company's 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, consider using the GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
