On Dec 4, 2015, Zacks Investment Research downgraded Jacobs Engineering Group Inc. JEC to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold) primarily due to an unfavorable business environment. Going by the Zacks model, companies holding a Zacks Rank #4 have chances of underperforming the broader market over the next few quarters.
Why the Downgrade?
In fourth-quarter fiscal 2015, Jacobs’ revenues slipped 3.2% year over year. Quarterly earnings also fell short of the year-ago tally by 9.1%. According to the company, the year-over-year fall in both top and bottom line was primarily led by constant weakness in global commodity and energy prices. Persistence of such unfavorable pricing environment might adversely affect the company’s revenues and earnings in the near future.
Also, unremitting appreciation of the U.S. dollar with respect to other major currencies such as Euro and Yen continues to hurt Jacob’s international trade. This is because a strengthening dollar raises the prices of the company’s construction services, thus rendering them less competent in markets with relatively lower exchange rates.
Moreover, low-entry barriers in engineering, architectural, consulting and designing market segments escalate threats of rivalry for Jacobs. At the same time, the company’s maintenance and construction sites are subjected to certain risks related to safety issues. Any adverse happenings at these sites might lead to severe financial losses for the company.
The above-mentioned issues triggered downward revisions in the Zacks Consensus Estimate over the last 90 days. The same moved south by 7.4% to $3.11 for 2016 and by 7.3% to $3.45 for 2017. At this juncture, we believe Jacobs need to focus on the booming demand witnessed in its technical services division as well as undertake cost-saving strategies to achieve better results in the to-be-reported quarters.
Stocks to Consider
Better-ranked stocks in the industry include KBR, Inc. KBR, The ADT Corporation ADT and Booz Allen Hamilton Holding Corporation BAH. All three stocks currently hold a Zacks Rank #2 (Buy).
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