Raymond James analysts downgraded the shares of Jacobs (J) to Market Perform from Outperform, removing its price target on the stock.
The analysts told investors in a note that they are downgrading the stock due to the execution risk, adding that the extended payoff outweighs the core business strength.
"We are reducing our rating on J to Market Perform given an increased execution risk with the Reverse Morris Trust spin of its CMS/C&I segment and a longer road to create shareholder value for existing shareholders leading to a range-bound stock over the next several quarters," the analysts explained.
Jacobs reported its fourth-quarter results before the open on Tuesday, posting EPS of $1.90, $0.13 worse than the analyst estimate of $2.03. Revenue for the quarter came in at $4.3 billion versus the consensus estimate of $4.21 billion.
The company also announced it has agreed to spin off and combine its Critical Mission Solutions and Cyber & Intelligence government services businesses with Amentum to create a new publicly traded company in the government services sector.
The analysts stated: "The proposed transaction tax efficiently spins CMS plus C&I (~$5.5B in sales and ~$440M EBITDA) and we estimate proceeds to be net ~$4.2-5.3B for Jacobs shareholders. This is in line with what many were projecting for just the CMS business alone."
They added that their firm likes the separation but feels it takes too long for shareholders to get paid. "The proposed transaction tax efficiently spins CMS plus C&I (~$5.5B in sales and ~$440M EBITDA), and we estimate proceeds to be net ~$4.2-5.3B for Jacobs shareholders. This is in line with what many were projecting for just the CMS business alone," wrote the analysts.
"Overall, the print was mixed with topline strength offset by margin softness, a weak guide to start the year, and a host of transaction details that point to benefits in 2025," they concluded.
J shares are down over 1% Wednesday after a more than 8% decline in Tuesday's session.