3 Contracts in 1 Day for Jacobs - Analyst Blog

Jacobs Engineering Group Inc. (JEC) won three new contracts on August 10. The first one was from France based Heurtey Petrochem SA. Although the contract value was not disclosed, the total cost for the installation of project was projected at $100 million.
 
As per the agreement, Jacobs will furnish engineering services for a new hydrogen plant generation unit at the Naftna Industrija Srbije (NIS) refinery in Pancevo, Serbia.
 
The second contract came from Alamo Regional Mobility Authority (Alamo RMA) valued at $109 million for construction and $9.1 million for designing. Jacobs will design eight direct connectors and along with Williams Brothers will construct four connectors in the US 281/Loop 1604 interchange.
 
Finally, Jacobs won a five-year contract from San Francisco Bay Area Rapid Transit (BART) for $15 million. According to the contract, Jacobs will deliver professional construction management services to BART.
 
We believe that Jacobs’ track record of contract wins and strong liquidity position will help it to perform well in future. At the end of the nine months ended June 30, 2010, Jacobs’ net cash position was $847.6 million compared with $743 million at the end of the second quarter of fiscal 2010.
 
Jacobs’ diversification across markets, geographical regions and services will also help it to generate growth in the sluggish environment. The company plans to expand into the emerging markets such as India, China and the Middle East, which are expected to perform much better than the developed markets in the coming years. Moreover, Jacobs’ ongoing acquisition strategy will help it to strengthen its position.
 
However, we are pessimistic about the incessant decrease in Jacobs’ backlog and the expectations of a slower market recovery.
 
Jacobs has recorded a continuous sequential decrease in backlog. During the first quarter of fiscal 2010, backlog reduced to $14.9 billion from $16.0 billion in the previous quarter. In the second quarter, it reduced to $14.7 billion, and finally in the third quarter to $13.5 billion. The decrease was due to unstable market conditions causing large investors to hold back investments.
 
Thus, we reiterate our Neutral recommendation on the stock with a short-term rating of Hold, equivalent to the Zacks #3 Rank.