Contracts in Jacobs' Bag - Analyst Blog

Jacobs Engineering Group Inc. (JEC) has won two contracts: one from Los Angeles World Airports (LAWA) and the other from Minnesota Department of Transportation.

According to the contract, Jacobs will be assisting LAWA with its management implementation support services. The latter contract was for $125.3 million to provide engineering services for the Trunk Highway 169/Interstate 494 Interchange. In the second contract Jacobs will act as a design leader along with C.S. McCrossan Construction, Inc. and Edward Kraemer & Sons, Inc.

Jacobs' diversification across markets, geographical regions and services will also help 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, 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; therefore the sluggish economic environment, which has reduced the spending power of clients, is the prime reason for the decrease in backlog. Investors fear infusing capital in these unstable market conditions.

The company also faces immense risk as it operates in a highly-competitive environment. Hence, we maintain our Neutral recommendation on the stock. The stock currently retains a Zacks #3 Rank (short-term Hold rating).

 
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