With a daily gain of 3.67%, a 3-month gain of 17.23%, and an Earnings Per Share (EPS) of 5.8, Jacobs Solutions Inc (J, Financial) has been a noteworthy player in the stock market. The question that arises, however, is whether the stock is fairly valued. This article aims to provide a comprehensive analysis of Jacobs Solutions' valuation. We encourage you to delve into the following sections to gain a deeper understanding.
Company Introduction
Jacobs Solutions Inc is a global provider of engineering, design, procurement, construction, and maintenance services. It also offers cyber engineering and security solutions. The firm serves a wide range of sectors, including water, transportation, healthcare, technology, and chemicals. With a workforce of approximately 60,000, Jacobs Solutions generated $14.9 billion in revenue and $1.3 billion in adjusted operating income in fiscal 2022.
With a current stock price of $136.18, it is crucial to compare this figure with the GF Value to determine if the stock is overpriced, underpriced, or fairly valued. The GF Value is a proprietary measure that estimates the fair value of a stock, providing a benchmark for investors.
Understanding the GF Value
The GF Value is a unique valuation model that considers three key factors: historical trading multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future business performance estimates. This value serves as a benchmark for the fair value at which the stock should ideally be traded.
If the stock price is significantly above the GF Value Line, it indicates overvaluation and potential poor future returns. Conversely, if the stock price is significantly below the GF Value Line, it suggests undervaluation and a likelihood of higher future returns. Based on this analysis, Jacobs Solutions (J, Financial) appears to be fairly valued at its current price of $136.18 per share.
Since Jacobs Solutions is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Before investing in a company's stock, it's crucial to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Jacobs Solutions has a cash-to-debt ratio of 0.28, which is lower than 69.2% of companies in the Construction industry. This indicates that the financial strength of Jacobs Solutions is fair, with a score of 6 out of 10.
Profitability and Growth
Investing in profitable companies, especially those with consistent long-term profitability, poses less risk. Jacobs Solutions has been profitable for 10 out of the past 10 years. Over the past twelve months, the company had a revenue of $15.90 billion and an Earnings Per Share (EPS) of $5.8. Its operating margin of 6.94% ranks better than 62.72% of companies in the Construction industry, indicating strong profitability.
Growth is a crucial factor in a company's valuation. Jacobs Solutions' 3-year average revenue growth rate is better than 64.65% of companies in the Construction industry. Its 3-year average EBITDA growth rate of 31.5% ranks better than 84.59% of companies in the industry, indicating strong growth.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Jacobs Solutions' ROIC was 8.08, while its WACC was 8.43.
Conclusion
Overall, Jacobs Solutions (J, Financial) stock appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 84.59% of companies in the Construction industry. To learn more about Jacobs Solutions stock, you can check out its 30-Year Financials here.
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