Jacobs Solutions (J)

Global professional services company Jacobs Solutions (NYSE:J) fell short of the market’s revenue expectations in Q1 CY2025 as sales rose 2.2% year on year to $2.91 billion. Its non-GAAP profit of $1.48 per share was 6.9% above analysts’ consensus estimates.

Company Overview

With a workforce of approximately 45,000 professionals tackling complex challenges from water scarcity to cybersecurity, Jacobs Solutions (NYSE:J) provides engineering, consulting, and technical services focused on infrastructure, sustainability, and advanced technology solutions.

The sector has historically benefitted from steady government spending on defense, infrastructure, and regulatory compliance, providing firms long-term contract stability. However, the Trump administration is showing more willingness than previous administrations to upend government spending and bloat. Whether or not defense budgets get cut, the rising demand for cybersecurity, AI-driven defense solutions, and sustainability consulting should benefit the sector for years, as agencies and enterprises seek expertise in navigating complex technology and regulations. Additionally, industrial automation and digital engineering are driving efficiency gains in infrastructure and technical consulting projects, which could help profit margins.

Jacobs Solutions competes with global engineering and consulting firms like AECOM, WSP, Tetra Tech, and Arcadis in the infrastructure space, while also facing competition from management consulting firms such as Accenture, Deloitte, and McKinsey & Company in its advisory services.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $11.69 billion in revenue over the past 12 months, Jacobs Solutions is one of the larger companies in the business services industry and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because it’s challenging to maintain high growth rates when you’ve already captured a large portion of the addressable market. To expand meaningfully, Jacobs Solutions likely needs to tweak its prices, innovate with new offerings, or enter new markets.

As you can see below, Jacobs Solutions’s revenue declined by 1.7% per year over the last five years, a rough starting point for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. Jacobs Solutions’s recent performance shows its demand remained suppressed as its revenue has declined by 4.9% annually over the last two years.

We can dig further into the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Jacobs Solutions’s backlog reached $22.16 billion in the latest quarter and was flat over the last two years. Because this number is better than its revenue growth, we can see the company accumulated more orders than it could fulfill and deferred revenue to the future. This could imply elevated demand for Jacobs Solutions’s products and services but raises concerns about capacity constraints.

This quarter, Jacobs Solutions’s revenue grew by 2.2% year on year to $2.91 billion, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 7.1% over the next 12 months, an improvement versus the last two years. This projection is particularly noteworthy for a company of its scale and suggests its newer products and services will catalyze better top-line performance.

Adjusted operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies because it excludes non-recurring expenses, interest on debt, and taxes.

Jacobs Solutions was profitable over the last five years but held back by its large cost base. Its average adjusted operating margin of 9% was weak for a business services business.

Looking at the trend in its profitability, Jacobs Solutions’s adjusted operating margin might fluctuated slightly but has generally stayed the same over the last five years, which doesn’t help its cause.

This quarter, Jacobs Solutions generated an adjusted operating profit margin of 9.9%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Jacobs Solutions, its EPS and revenue declined by 2% and 1.7% annually over the last five years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Jacobs Solutions’s low margin of safety could leave its stock price susceptible to large downswings.

In Q1, Jacobs Solutions reported EPS at $1.48, down from $1.89 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 6.9%. Over the next 12 months, Wall Street expects Jacobs Solutions’s full-year EPS of $6.24 to grow 3%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Jacobs Solutions has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 5.6% over the last five years, slightly better than the broader business services sector.

Taking a step back, we can see that Jacobs Solutions’s margin dropped by 3.2 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Jacobs Solutions burned through $96.43 million of cash in Q1, equivalent to a negative 3.3% margin. The company’s cash burn increased from $70.63 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Jacobs Solutions historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.5%, somewhat low compared to the best business services companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Jacobs Solutions’s ROIC increased by 3 percentage points annually over the last few years. This is a good sign, and we hope the company can continue improving.

Jacobs Solutions reported $1.2 billion of cash and $3.51 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.13 billion of EBITDA over the last 12 months, we view Jacobs Solutions’s 2.0× net-debt-to-EBITDA ratio as safe. We also see its $25.57 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Jacobs Solutions beat analysts’ EPS expectations this quarter. On the other hand, its revenue and EPS missed. Overall, this was a softer quarter. The stock traded down 1.2% to $118.02 immediately following the results.

Updated: May 21, 2025 at 11:12 PM EDT

Before investing in or passing on Jacobs Solutions, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Jacobs Solutions doesn’t pass our quality test. First off, its revenue growth was weak over the last five years. And while its scale and strong customer awareness give it negotiating power, the downside is its declining EPS over the last five years makes it a less attractive asset to the public markets. On top of that, its flat backlog disappointed.

Jacobs Solutions’s P/E ratio based on the next 12 months is 19.7x. This multiple tells us a lot of good news is priced in - we think there are better investment opportunities out there.

Wall Street analysts have a consensus one-year price target of $143.88 on the company (compared to the current share price of $126).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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