Jacobs Engineering

Jacobs grew its fiscal third-quarter adjusted net revenue by 8.3% and adjusted EPS by 13.6% from the prior-year period. Jacobs raised the midpoint of its full-year guidance range and now anticipates adjusted EPS of $7.20-$7.30, up from $7.10-$7.35 previously.

Why it matters: Management raised the midpoint of its fiscal 2026 outlook for the third time this year, as the engineering firm continues to benefit from broad-based growth across multiple end markets. We expect Jacobs to carry its strong momentum into fiscal 2027 and beyond, given the long runway for growth. Jacobs ended the quarter with a $28.9 billion backlog, up 27% year over year, which we expect to translate into high-single-digit revenue growth over the next few years. We think that Jacobs is on pace to surpass its long-term fiscal 2029 targets. We believe that Jacobs is poised to capitalize on a strong pipeline of opportunities across several end markets, including data center, semiconductor, water, energy and power, and transportation.

The bottom line: We've raised our fair value estimate for no-moat Jacobs to $154 from $147, reflecting more-optimistic revenue growth projections and the time value of money. We see the stock as fairly valued at current levels. Management deployed $142 million into share repurchases in the fiscal third quarter, which we consider a good use of capital because the stock was trading at a meaningful discount to our fair value estimate throughout most of the period.

Key stats: Jacobs now derives roughly 11% of its revenue from data centers and related end markets that support the AI buildout, up from 10% in the previous quarter.

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Following Jacobs' fiscal third-quarter results, we've raised our fair value estimate to $154 per share from $147, which reflects our more optimistic revenue growth projections and the time value of money. Management raised its fiscal 2026 guidance for the third time this year and now anticipates adjusted EPS $7.20-$7.30 (up from $7.10-$7.35 previously).

Jacobs’ long-term goals include growing organic adjusted net revenue at a 6%-8% compound annual growth rate through fiscal 2029. We see this target as realistic, as we believe that Jacobs is poised to capitalize on favorable secular trends across several end markets, including water and environmental, life sciences, data center, advanced manufacturing, and critical infrastructure.

Furthermore, Jacobs aims to expand its adjusted EBITDA margins to at least 17% by fiscal 2029. Management expects to drive this margin expansion through global delivery, digital and artificial intelligence capabilities, synergies with PA Consulting, and a mix shift toward more profitable consulting and advisory work.

We forecast organic revenue growing at a high-single-digit clip through fiscal 2030. We believe the company is poised to capitalize on multiple favorable secular drivers, including infrastructure modernization, energy transition, supply chain investments (particularly in the semiconductor and life sciences end markets), and the artificial intelligence infrastructure buildout. We also think Jacobs is well positioned to benefit from the $1.2 trillion infrastructure bill in the US, given the firm’s strong position in areas such as water and transportation infrastructure.

We project adjusted EBITDA margins (calculated on a net revenue basis) expanding from 13.9% in fiscal 2025 to around 17% by fiscal 2030, which reflects a mix shift toward higher-margin consulting services, synergies with PA Consulting, and benefits from management’s cost reduction plan. We assume an 8.4% weighted average cost of capital and a 24% long-run effective tax rate in our model.

We assign Jacobs Solutions a Morningstar Economic Moat Rating of none. We believe that most engineering and construction, or E&C, firms lack moats, as intense competition, significant customer power, and the relatively standardized nature of most projects hamper the creation of economic moats. Furthermore, E&C firms have to contend with high cyclicality and event risk, such as legal disputes and cost overruns (which could be caused by a number of factors, including labor shortages, subcontractor performance, and inclement weather). As a result of a fragmented industry structure, high historical volatility, and the potential for large losses on individual projects, it is difficult for E&C firms to maintain consistently attractive returns on invested capital throughout the economic cycle.

Although we think that most E&C firms derive the bulk of their revenue from no-moat activities, we acknowledge that the potential for moat creation exists in certain niche sectors. Jacobs has a strong reputation for its design and consulting capabilities and was ranked the number-two design firm in the United States in 2025 by Engineering News-Record magazine. The firm boasts a number of signature projects, such as California WaterFix, restoration of the Palace of Westminster in London, and New York's LaGuardia Airport expansion.

Furthermore, Jacobs’ portfolio is well aligned with multiple favorable secular trends, including growing investment in infrastructure as well as the transition to clean energy. We believe that Jacobs is poised to capitalize on these trends thanks to its strong competitive position in the transportation, water, and environment end markets.

Nonetheless, despite some potential for moat creation in certain niches, we view most of the design and construction work that E&C firms engage in as relatively routine. Industry cyclicality has historically driven relatively volatile returns on invested capital, and we do not expect that to change. As a result, we believe that Jacobs lacks an economic moat.

Management has shifted Jacobs' portfolio toward sectors with favorable long-term prospects, including transportation and water.

The firm is poised to benefit from increased government spending in the United States due to the Infrastructure Investment and Jobs Act, the Inflation Reduction Act, and the Chips Act.

We expect operating margins to expand due to cost optimization and favorable mix shift.

Jacobs’ mergers and acquisitions track record is mixed, as its serial acquisitions (over 80 deals since 1994) have been a drag on the firm’s returns on invested capital.

Declines in government spending could have a significant impact on the firm’s earnings.

The firm faces the risk of cost overruns on its fixed-price contracts.