Jacobs Partially Acquires Aker - Analyst Blog

Jacobs Engineering Group Inc. (JEC) declared to acquire some of the operations of Latin American based Aker Solutions ASA for $675 million. Aker Solutions ASA, through its subsidiaries and affiliates, is a leading global provider of engineering and construction services, technology products and integrated solutions. 

The transaction, which is expected to close by the second quarter of fiscal 2011, is also anticipated to be highly accretive to fiscal 2011 earnings.

The acquisition will also expand Jacobs' presence in the emerging markets, which are expected to perform much better than the developed markets in the coming years. Jacobs' diversification across markets, geographical regions and services will help it to generate growth.

Jacobs has grown through acquisitions with Jordan, Jones and Goulding Inc. (JJG), a professional services firm in fiscal 2010. These acquisitions are expected to strengthen Jacobs' position in the infrastructure market in the future.  

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 fiscal 2010, Jacobs' net cash position was $858.9 million.

However, Jacobs' continuous decrease in backlog since the beginning of fiscal 2010 is expected to negatively affect its top-line results in fiscal 2011. Further, the stock is cyclical in nature and thus, the sluggish economic environment, which has reduced the spending power of the clients, was the prime reason for the decrease in backlog. Large investors fear to infuse capital in these unstable market conditions.

Jacobs also faces immense risk as it operates in a highly-competitive environment. Hence, the stock currently retains its Zacks #3 Rank (short-term Hold rating).

 
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