Jacobs Engineering Group Inc. JEC is scheduled to report second-quarter fiscal 2015 (ended Mar 2015) results before the opening bell on Apr 28, 2015.
Over the last four trailing quarters, the company generated a negative average earnings surprise of 0.16%. However, supported by a unique relationship-based model, the company aims to improve its revenues and margins over time. Currently, we assign a Rank #4 (Sell) to the stock as it faces trouble from certain short-term headwinds. Let’s see how things are shaping up prior to this announcement.
Factors to Influence Q2 Results
A worldwide decline in the prices of energy resources is lowering the demand for Jacobs’ offerings. Depreciating demand is exerting pressure on the company’s commodity and service prices, which, in turn, is reducing the rate of capital expenditure.
As a result of these factors, the company’s oil sands business in Canada and U.S. shale oil business suffered weakness in the last quarter. We anticipate these negatives will continue to affect Jacobs’ trade in second-quarter fiscal 2015 as well.
Jacobs’ revenues and profit margins are highly sensitive to the currency and exchange rate fluctuations in the market. Constant evaluation of the U.S. dollar with respect to other major currencies such as Euro is hampering the company’s international trades. Taking into account these short-term challenges, Jacobs has aligned its outlook toward the lower end of the previously stated earnings guidance range of $3.35–$3.85 per share for full-year fiscal 2015.
The company earns almost one-third of its revenues from the acquisition-based business deals. However, expenses related to such deals are weighing on its margins in the short term. Notably, Jacobs has halted its latest acquisition deal due to lack of funds. We believe this would hurt the company’s margins in the to-be-reported quarter.
Earnings Whispers
Our proven model conclusively shows that Jacobs is likely to miss earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for an earnings beat. That is not the case here as we will see below.
Zacks ESP: Jacobs currently has an Earnings ESP of -3.80%. This is because the Zacks Consensus Estimate of 79 cents stands above the Most Accurate estimate of 76 cents.
Zacks Rank: Jacobs’ Zacks Rank #4 (Sell), when combined with a negative ESP, predicts an earnings miss. Moreover, we caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum.
Other Stocks to Consider
Here are some companies you may want to consider instead, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Broadcom Corp. BRCM, with an Earnings ESP of +1.35% and a Zacks Rank #1.
Apple Inc. AAPL, with an Earnings ESP of +0.92% and a Zacks Rank #2.
Akamai Technologies, Inc. AKAM, with an Earnings ESP of +1.96% and a Zacks Rank #3.
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