Dallas, Tex.-based Jacobs Engineering Group Inc. (J) provides consulting, technical, scientific, and project delivery services for the government and private sectors. The company operates in two segments: Critical Mission Solutions and People & Places Solutions. In comparison, Johnson Controls International plc (JCI) in Cork, Ireland, engages in engineering, manufacturing, commissioning, and retrofitting building products and systems. It operates in four segments: Building Solutions North America; Building Solutions EMEA/LA; Building Solutions Asia Pacific; and Global Products.
Despite the current lockdown in China and geopolitical instability, the engineering and construction sector’s recovery has been driven primarily by increasing activities in the infrastructure and residential segments. In addition, the Infrastructure Investment and Jobs Act, with its investments across health care, public safety, and other public infrastructure, bodes well for the engineering and construction companies. Furthermore, rapid digitalization and a shift toward connected construction capabilities are expected to boost the industry’s growth in the coming months. Therefore, both J and JCI should benefit.
J has gained 7.2% in price over the past month, while JCI has negative returns.
But which of these two stocks is a better buy now? Let’s find out.
Latest Developments
On April 28, 2022, J’s board of directors declared a quarterly cash dividend payable to shareholders in the amount of $0.23 per share of its common stock. The dividend will be paid on June 24, 2022, to shareholders of record as of the close of business on May 27, 2022.
On May 4, 2022, Olivier Leonetti, JCI’s CFO said, “Looking ahead, the strength of our backlog and the improving margin profile, together with our cost savings programs, positions us to deliver on the financial targets we set for the medium term.”
Recent Financial Results
J’s net revenue increased 10.1% year-over-year to $3.30 billion for its fiscal second quarter, ended April 1, 2022. The company’s adjusted net earnings from continuing operations grew 2.3% year-over-year to $223 million. Also, its adjusted EPS from continuing operations came in at $1.72, up 3.6% year-over-year.
JCI’s revenues increased 9% year-over-year to $6.10 billion for the fiscal second quarter, ended March 31, 2022. The company’s adjusted net income from continuing operations grew 18.2% year-over-year to $441 million. Also, its adjusted EPS from continuing operations came in at $0.63, up 21.2% year-over-year.
Past and Expected Financial Performance
J’s revenue and EPS have grown at CAGRs of 5.9% and 23.6%, respectively, over the past three years. Analysts expect J’s revenue to increase 7.1% in its fiscal year 2022 and 4.8% in fiscal 2023. The company’s EPS is expected to grow 13.4% in fiscal 2022 and 14.4% in its fiscal year 2023. Furthermore, its EPS is expected to grow at a 13.8% rate per annum over the next five years.
JCI’s revenue and EBITDA have grown at CAGRs of 1.4% and 4.4%, respectively, over the past three years. The company’s revenue is expected to increase 17.6% in its fiscal year 2022 and 6.5% in fiscal 2023. Its EPS is expected to grow 22.3% in fiscal 2022 and 25.3% in fiscal 2023. Also, JCI’s EPS is expected to increase at a rate of 19.6% per annum over the next five years.
Profitability
JCI’s trailing-12-month revenue is 1.71 times what J generates. JCI is also more profitable, with gross profit and net income margins of 33.35% and 5%, respectively, compared to J’s 23.65% and 3%.
Furthermore, JCI’s 7.95%, 4.83%, and 7.23% respective ROE, ROA, and ROTC are higher than J’s 7.56%, 4.55%, and 6.37%.
Valuation
In terms of forward non-GAAP PEG, J is currently trading at 0.96x, which is 6.7% higher than JCI’s 0.90x. However, 1.77x JCI’s forward EV/S ratio is 31.1% higher than J’s 1.35x.
POWR Ratings
J has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. In comparison, JCI has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
J has a B grade for Stability, in sync with its beta of 0.86. In comparison, JCI has a C grade for Stability, consistent with its beta of 1.17.
Of the 91 stocks in the Industrial - Services industry, J is ranked #17. In comparison, JCI is ranked #60.
Beyond what I have stated above, we have also rated the stocks for Quality, Growth, Sentiment, Value, and Momentum. Click here to view all the J ratings. Also, get all the JCI ratings here.
The Winner
The engineering & construction industry is expected to grow tremendously with increasing demand this year and beyond. While both J and JCI are expected to gain, we think it is better to bet on J now because of its better stability and higher profitability.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Industrial - Services industry here.
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JCI shares were trading at $51.98 per share on Friday afternoon, up $0.97 (+1.90%). Year-to-date, JCI has declined -35.73%, versus a -15.28% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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