Jacobs Engineering Group (JEC) Quarterly Valuation – March 2014

Jacobs_logoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Jacobs Engineering fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Jacobs Engineering Group Inc. is a technical professional services firm. The Company provides a diverse range of technical, professional, and construction services to a number of industrial, commercial, and governmental clients. The Company provides four categories of services: Project Services, Process, Scientific, and Systems Consulting services, Construction services, and Operations and Maintenance services. In June 2013, the Company announced that it has acquired Compass Technology Services, Inc. In October 2013, Jacobs Engineering Group Inc announced that its South African joint venture, Jacobs Matasis (Proprietary) Limited acquired the business and assets of Ilitha Projects and Ilitha Staffing, two South African professional services companies. In November 2013, Jacobs Engineering Group Inc acquired an undisclosed majority interest in Guimar Engenharia SA. In February 2014, Jacobs Engineering Group Inc acquired Eagleton Engineering, LLC.

JEC Chart

JEC data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – FAIL
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $63.27
MG Value $45.40
MG Opinion Overvalued
Value Based on 3% Growth $45.39
Value Based on 0% Growth $26.61
Market Implied Growth Rate 5.86%
Net Current Asset Value (NCAV) -$1.32
PEmg 20.21
Current Ratio 1.82
PB Ratio 1.93

Balance Sheet – 12/27/2013

Current Assets $3,944,200,000
Current Liabilities $2,162,100,000
Total Debt $1,041,500,000
Total Assets $8,441,200,000
Intangible Assets $3,348,100,000
Total Liabilities $4,118,200,000
Outstanding Shares 131,860,000

Earnings Per Share

2014 (estimate) $3.61
2013 $3.23
2012 $2.94
2011 $2.60
2010 $1.96
2009 $3.21
2008 $3.38
2007 $2.35
2006 $1.64
2005 $1.29
2004 $1.13

Earnings Per Share – ModernGraham

2014 (estimate) $3.13
2013 $2.86
2012 $2.72
2011 $2.64
2010 $2.61
2009 $2.75


Jacobs Engineering is suitable for the Enterprising Investor but not the Defensive Investor.  The Defensive Investor is turned away by the low current ratio, insufficient dividend record, and high PEmg ratio.  The Enterprising Investor is satisfied with the company except for the lack of dividend payments, but that alone is not enough to eliminate the company from potential investment.  As a result, the Enterprising Investor following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research, including a look at 5 Undervalued Companies for the Defensive Investor as well as 5 Low PEmg Companies for the Enterprising Investor.   From a valuation perspective, the company appears to be overvalued presently.  The EPSmg (normalized earnings) have grown from $2.61 in 2010 to only $3.13 estimated for 2014, a level of demonstrated growth that does not support the market’s implied estimate of 5.86% earnings growth.  The ModernGraham valuation model accordingly returns an estimate of intrinsic value that falls well below the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Jacobs Engineering Group (JEC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Jacobs Engineering Group (JEC) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.


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