Jacobs' Three New Contracts - Analyst Blog

Jacobs Engineering Group Inc. (JEC) has received contracts from Gatwick Airport Limited (GAL), Federal Aviation Administration (FAA), and CPC Corporation (CPC).

Jacobs is supposed to provide architecture and engineering design services to GAL till 2013, which can be extended for a year.  The contract value was not made public.  

The second contract from FAA was the basic ordering agreement (BOA) of $271.0 million for a period of five years with an option to extend it to an additional 4 years. According to the contract, Jacobs will render design-build services for the FAA's National Airspace System (NAS) and Capital Investment Plan (CIP).

The third and the last contract from CPC was to provide design and licensing proprietary EUROCLAUS technology for the expansion of its Ta-Lin refinery project in Kaoshiung, Taiwan, which is anticipated to be operational from fiscal 2013.

Jacobs' diversification across markets, geographical regions and services will also help to generate growth. Jacobs' plans to expand into the emerging markets of 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 and robust liquidity position will help it to emerge stronger than its competitors like Fluor Corporation (FLR) and Foster Wheeler AG (FWLT). At the end of the third quarter of fiscal 2010, Jacobs' net cash position was $847.6 million.

However, we maintain an Underperform recommendation on the stock based on Jacobs' continuous decrease in backlog since the beginning of fiscal 2010, which is expected to negatively affect its top-line results in fiscal 2011.

The stock is cyclical in nature and thus, the sluggish economic environment, which has reduced the spending power of clients, was the prime reason for the decrease in backlog. Large investors fear to infuse capital in these unstable market conditions. Moreover, the company faces immense risk as it operates in a highly-competitive environment. The stock retains its Zacks #3 Rank (short-term Hold rating).

 
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