The case of Jacobs Engineering (JEC) is one where you want to push your head through a wall in relation to the "rewards" other stocks are receiving for quite horrendous results that simply "beat expectations". Jacobs business has been (all things considered) relatively stable ... the stock has not participated in this recent run, and in fact, after an initial spike in March, has been dead money for 4 months.
Yet on an earnings result that far exceeded some of the horror we have seen elsewhere (which has been rewarded of course), the stock was punched in the gut for an additional 8% Tuesday, even though they "beat expectations" on the bottom line with a slight miss on the top line. That is now 2 quarters in a row "The Street" has not been pleased ... [Apr 28, 2009: Jacobs Engineering Disappoints "the Street"]
We can now pick up JEC for a 12x forward multiple on 2009 estimates... or run into "early cycle" recovery stocks shrinking at 20-30-40% rates at 30-40x forward estimates on the hope those will seem cheap in retrospect after the "2nd half recovery" surge creates a wall of profits out of the heavens. As I said, if you own JEC, I can understand the holes in the wall in your office. If I was more of a "value guy" I'd be all over Jacobs down here below $40.
Along with Fluor (FLR) these are the 2 premium franches in global engineering & construction. Strangely, Fluor has been acting quite "normal," but even they are only at 14x earnings. Granted these are project-dependent companies with lump quarters, but if the globe is emerging from recession, why the hesistation on rewarding such names? But I learned long ago not to argue with the market... I'll leave that to the deep value investor crowd.
Let's take a closer look at the details of JEC today. Full report here.
- Jacobs Engineering Group Inc. said late Monday its fiscal third-quarter profit fell 13 percent as the engineering and construction company's government contracting business failed to offset declines in its private sector markets.
- The Pasadena, Calif., company beat Wall Street estimates. Net income fell to $94.9 million, or 76 cents per share, from $108.7 million, or 87 cents per share in the same quarter last year. Analysts surveyed by Thomson Reuters expected earnings of 75 cents per share on revenue of $2.83 billion.
- Revenue for the quarter ended June 30 fell 7 percent to $2.71 billion, from $2.92 billion in the same period last year.
- always key for E&C companies
- Jacobs Engineering Group said a backlog of $15.8 billion at the end of the quarter compares with a backlog of $16.6 billion the end of the last quarter. About $665 million was removed from backlog due to project cancellations and other reasons.
- The company shaved the top end of its previous per share earnings 2009 outlook, to a range of $3.10 to $3.35 from $3.10 to $3.50.
- the importance of governments around the world is apparent; Keynes must be smiling
- Craig L. Martin, president and CEO, said Jacobs Engineering Group's public sector markets that are led by national government programs remain good, but growth in the quarter was insufficient to offset declines in the company's private sector markets.
So how is the real world, away from Wall Street and government transfer programs to create "prosperity" doing Mr. Martin?
- "The market remains uncertain with economic conditions, oil prices and business confidence reflecting that uncertainty."
Hmm, uncertain twice in one sentence. Obviously the CEO has not been coached on "how to defeat the short sellers, and have your stock skyrocket 15% overnight". All it takes is one word Mr. Martin - just whisper "stabilization".
I like this name, but Tuesday's stock move has pushed it below yet another moving average; one it has just surpassed, and these "gap downs" after earnings generally create a group of trapped longs who are looking to get out, causing more pressure. We'd want to see the stock break back above this moving average and start on a nice run - even if it's dirt cheap and a high quality company. In the meantime, I suppose one has to buy Whole Food Markets or Harley Davidson, since that's where all the green shoots are.