By Peet Serfontein & Zimele Mbanjwa.
Jacobs Solutions Inc., provides a range of professional services including consulting, technical, engineering, scientific, and project delivery, for the government and private sectors. The company focuses on addressing key global challenges like urbanisation, water scarcity, and climate change, emphasising sustainability and innovation in their solutions.
Jacobs Solutions identifies its three strategic accelerators as being Climate Response, Advisory, as well as Data Solutions. These are expected to open significant opportunities within advance manufacturing, cities & places, energy & environment, health & life sciences, infrastructure, national security, and the space exploration industries.
Technically, the price appears to be holding above key support (see the blue trendline on the main chart as well as the insert). Persistence above key support indicates strong underlying market sentiment and potential resilience against downward trends.
The stock is trading above its 200-day simple moving average of ~$125.88. Fading downside momentum, according to the Moving Average Convergence Divergence (MACD) histogram, and the consistent upward trajectory of the On-balance volume (OBV) indicator, supports a bullish stance.
Share Information
| Share Code |
J US |
| Industry |
Commercial & Professional Services |
| Market Capital (USD) |
16.68 billion |
| One Year Total Return |
7.03% |
| Return Year-to-Date |
1.75% |
| Current Price (USD) |
132.07 |
| 52 Week High (USD) |
141.16 |
| 52 Week Low (USD) |
109.00 |
| Financial Year End |
September |
|
The stock has seen decent growth over the past 12 months. Several technical indicators suggest further upside over the near term. |
Consensus expectations
(Bloomberg)
|
FY23 |
FY24E |
FY25E |
FY26E |
| Headline Earnings per Share (USD) |
7.20 |
8.07 |
8.98 |
10.18 |
| Growth (%) |
|
12.06 |
11.32 |
13.32 |
| Dividend Per Share (USD) |
0.75 |
1.13 |
1.20 |
1.39 |
| Growth (%) |
|
50.00 |
6.67 |
15.83 |
| Forward PE (times) |
|
16.37 |
14.71 |
12.98 |
| Forward Dividend Yield (%) |
|
0.85 |
0.91 |
1.05 |
|
TThe market expects low-teens bottom-line growth for the next few years. |
Buy/Sell Rationale
Technical Analysis:
-
On the second chart we see the bullish trend periods for the stock - measured in weeks. A prolonged bullish trend typically signifies growing investor confidence in the stock. As the stock consistently performs well, more investors are likely to believe in its potential for further growth, which can attract additional buying interest.
-
Our entry range for this trade is between $131 and $137, or as close as possible to the current reference price of $133.83. A drop below the range would indicate a structural change in the trend, giving reason to negate the idea.
-
Our target price is $150, representing upside of ~12.1% from current levels.
-
Forward calculations of the RSI suggest that the stock will be in overbought territory at $215, making our profit target realistic.
-
Our proposed time to exit is towards the end of February 2024, though investors can adjust for either a longer or shorter time horizon, depending on price behaviour.
-
A drop below $127 (downside of ~5.1% from current levels) would imply weakening technicals. As such, a stop-loss is recommended at this level.
-
We expect moderate volatility going forward and hence suggest a medium capital at-risk allocation for this trade. Increase exposure for a break above $137.
Long-term fundamental view:
-
The company operates through four operating segments: People & Places Solutions (P&PS) (~58% of revenue), Critical Mission Solutions (CMS) (~29% of revenue), PA Consulting (PA) (~7% of revenue) and Divergent Solutions (DVS) (6% of revenue).
-
The P&PS segment provides end-to-end solutions for clients, such as climate change, energy transition, connected mobility, integrated water management, smart cities, and biopharmaceutical manufacturing.
-
The CMS segment provides a range of solutions including information and cyber warfare, digital transformation and modernisation, national security and defence, space exploration, digital asset management and the green energy transition.
-
The PA segment provides consulting services to sectors like security, energy, health, transport, and others.
-
The DVS segment serves as the core foundation for developing and delivering advanced cloud, cyber, data and digital technologies.
-
In FY23 the company produced consensus beating revenue amid an improved performance from the P&PS segment which benefitted from stronger performance in its Advanced Facilities and US business operations, and the CMS business that improved performance due to increased spending in the US government business sector. Operating profits also improved over the year, while diluted earnings grew, but were behind expectations.
-
The backlog (order book) at year end was $29.1 billion (FY22: $27.9 billion). Management highlighted that new prospects and new sales remain strong, and the company continues to have a positive outlook for many of the industry groups and sectors in which its clients operate. Management's focus remains on executing on long-term growth objectives, which includes expanding capacity and enhancing supply chain capability.
-
The group is set to spin off its CMS segment in FY24, which it expects will provide margin uplift due to a streamlined operating model and cost structure.
-
Some downside risks to operations include lagging the competition with respect to technological and scientific advances. The group also notes that demand for its services may be impacted by continuing inflation, high interest rates, and increased construction costs. The nature of contracts, particularly any fixed-price contracts, subjects J to risks of cost overruns
| Share Name and position |
KO - Time to Exit
(Closed the position) |
ALLE - Profit Take
(Closed the position) |
LW - Profit Take
(Close the position) |
| Entry |
55.78 |
105.52 |
98.14 |
| Current |
60.39 |
122.78 |
108.32 |
| Movement |
8.3% |
16.4% |
10.4% |
|
Position closed on its exit date of 12 January 2024.
|
The stock price reached our proposed target on 5 January 2024, and we closed the position to harvest gains.
|
Stock is nearing its time to exit of 24 January 2024, and we suggest closing the position at current levels to protect profits.
|
| Share Name and position |
COO - Profit Take (Close the position) |
HPE - Deteriorating technicals (Close the position) |
CWH - Buy (Continue to hold) |
| Entry |
344.95 |
15.74 |
21.50 |
| Current |
382.82 |
15.31 |
24.61 |
| Movement |
11% |
-2.7% |
14.5% |
|
The stock is trading just below our price target, and given current market volatility, we suggest taking profit.
|
We suggest closing the position to protect against further losses due to deteriorating technical indicators.
|
The price appears to be developing a right-angled broadening bottom pattern. The stock is testing its 200-day moving average and the trade idea is regarded as a counter-trend strategy. Fading upside momentum is a concern.
Our profit target remains at $27 with a trailing stop-loss at $23. Exit the trade around 13 March 2024.
|
