JACOBS SOLUTIONS INC. (J) stock intrinsic value fair value estimate & owner earnings analysis

Jacobs Solutions is a global engineering, design and consulting firm. Since spinning off its government services business into Amentum on September 27, 2024, it consists of two parts: Infrastructure & Advanced Facilities (water, transportation, environmental work, and the design and construction management of data centers, semiconductor plants and life sciences facilities) and PA Consulting, a UK-based consultancy. Jacobs bought the remaining roughly 35% of PA in March 2026 for about £1.2 billion upfront (80% cash, 20% Jacobs shares) plus £75 million due in 2028. About 62% of fiscal 2025 revenue came from the United States and about 24% from Europe; only 8% came directly or indirectly from the US federal government. How we measured earnings. We start from operating cash flow, strip out working-capital swings, and deduct stock compensation and the capital spending needed to keep the business running. Because the Amentum spin changed the company so much, earlier years describe a different, larger business, so fiscal 2025 (ended September 26, 2025) is the only clean full year. That year produced owner earnings of $618 million ($5.07 per share). Adding back the $147 million of cash interest gives $765 million of cash generated before paying lenders, which is the stream we value; the debt is subtracted at the end. Two accounting choices matter. First, the $227 million loss on the Amentum shares Jacobs held in fiscal 2025 and the roughly $360 million of non-cash charges in fiscal 2026 when PA employee equity awards vested on the buyout are one-time items tied to the spin and the PA purchase, so they are not treated as ongoing costs. Second, about $155 million of amortization in fiscal 2025 on acquired intangibles (mainly from the CH2M and PA acquisitions) is added back as a non-cash charge. Those acquired client relationships wear out, but the business keeps renewing them through business-development spending it already expenses, and a growing backlog shows that renewal is happening, so we did not reduce the earnings level for it. Cash taxes in fiscal 2025 ran well above the tax expense shown in the income statement; we left that drag in rather than adjusting for it. Recent trend. Fiscal 2025 owner earnings were flat against fiscal 2024 ($618 million both years), but fiscal 2024 still included the business later spun off, so the two years are not comparable. The cleaner evidence is the first nine months of fiscal 2026: before the PA vesting charges, operating profit was about $798 million against $652 million a year earlier (up 22%), and backlog reached $28.9 billion at June 26, 2026, up 27%. Much of the headline revenue jump is low-margin pass-through construction cost, so we credit profit growth, not revenue growth. Operating cash flow for those nine months was only $353 million because receivables and contract assets rose about $595 million, largely offset by a $518 million rise in payables. We read that as timing on fast-growing project work rather than weaker earnings, but we could not reconcile every line because the full quarterly cash-flow detail was not available to us. Debt. At June 26, 2026 Jacobs owed $3.58 billion, all classed as long-term (term loans, a revolving credit line, 6.35% bonds and 5.90% bonds). We add the roughly $100 million deferred PA payment and credit the part of its $1.17 billion of cash above about $600 million kept to run the business, for net debt of about $3.1 billion ($26.13 per share on 118.9 million diluted shares). A term loan matures in March 2027; with cash flow covering interest about three times even at the low point of our weakest case, refinancing should not threaten the equity. Bear case ($80 per share). The fiscal 2026 gains fade and cash generation drops back to $765 million, then falls 12% in fiscal 2027 and 3% more in fiscal 2028 as three named risks hit together: the five years of federal highway and transit funding authorized by the Infrastructure Investment and Jobs Act ran only through September 30, 2026 and a successor bill could provide less, data center and chip-plant spending pulls back, and PA's UK public-sector clients cut consulting budgets. Growth then resumes at 2.5% a year to year 10 and holds flat after that. The business is worth about $12.6 billion; less $3.1 billion of net debt leaves $9.5 billion, or $80 per share. Base case ($153 per share). Fiscal 2026 cash generation of about $842 million (up 10%, below the 22% profit gain seen so far), up 8% in fiscal 2027 as the record backlog is worked off, 6% a year for the next four years (below the roughly 7% a year the continuing business grew revenue from fiscal 2022 to 2025), 4% a year for years 6 to 10, then flat with no growth assumed. The business is worth about $21.3 billion; less $3.1 billion of debt leaves $18.2 billion, or $153 per share. Bull case ($214 per share). Fiscal 2026 at about $903 million, close to the nine-month profit pace, then 10% growth in fiscal 2027, 8% for four years, 5% for five years and 2% for ten more years as water, transportation renewal and advanced-facility work keep compounding, then flat. The business is worth about $28.5 billion; less $3.1 billion of debt leaves $25.4 billion, or $214 per share. Left out: growth that depends on the AI data-center boom continuing beyond today's backlog, management's adjusted earnings targets, and promised PA cost savings of £12-15 million. We tested the base case against the weak fiscal 2025 and early fiscal 2026 operating cash flow; in both years the shortfall traced to receivables, contract assets and tax-payment timing rather than to lower earnings. Change since our last look. Our earlier estimates ($28, $75 and $151) used higher discount rates for every case. We now use a single 6% rate and show risk through the spread between the cases, which raises all three values. We also now value the business before interest and subtract its debt, which now includes the PA buyout financing. What would make this estimate wrong: a lasting fall in infrastructure funding or data-center spending deep enough to shrink earnings well below fiscal 2025 levels, or losses on large fixed-price projects.